New York GBL Section 349 covers ordinary trademark claims, court rules

Plaintiffs, eight
professional models and actresses, alleged that the owners and operators of a
strip club on Long Island (Summit) unlawfully used Plaintiffs’ images in social
media advertisements in violation of the Lanham Act and New York General
Business Law § 349.  The magistrate recommended
rejecting Summit’s motion to dismiss.
As to the Lanham
Act claim, Summit argued that plaintiffs failed to allege that they are
sufficiently well known such that the misappropriation of their images would
likely cause confusion. Beyond alleging that they were “well known
professional models,” plaintiffs listed appearances in national magazines and
television programs, as well as associations with other celebrities. “It is
borderline facetious to suggest that Plaintiffs who purportedly have appeared
on the Jay Leno Show, Chapelle’s Show, and Shark Tank, or who have appeared in
magazines such as Vogue and Esquire, or who have publicly appeared with Kim
Kardashian have failed to make plausible allegations of public recognition. And
the purported extent of Plaintiffs’ social media following—as many as two
million Facebook followers, seven-hundred thousand Instagram followers, and
one-hundred thousand Twitter followers—further corroborates those allegations
with factual specifics.” [Consider how revelations about fake followers might
affect plausibility.]
Summit argued that plaintiffs’ claims were really right of
publicity claims, but they could bring false endorsement claims too. “[T]here
is no bright line level of ‘celebrity’ necessary to sustain a claim for false
endorsement; rather, all that is necessary is that the plaintiff’s ‘identity
carries some “level of consumer recognition.” ’ ” Even without the use of names
or other identifying info in the ad, the plaintiffs plausibly alleged that the
ads would be perceived as endorsements. [Interesting issue—usually an
appearance in an ad, without substantial celebrity among the target audience or
identifying information, is just perceived as an actor’s appearance, as the FTC
Endorsement Guide indicates.  Is it
different with strip club ads?]
In addition, the magistrate engaged in extensive analysis to
conclude that the Section 349 claims shouldn’t be dismissed on the ground that consumer
confusion was a sufficiently consumer-directed harm under the law, rejecting
the majority view that “consumer-oriented conduct” under Section 349 requires
something more than mere confusion.  The
New York Court of Appeals has not ruled on the matter, and the court found that
the lower New York courts and federal courts that had required something more
than confusion were misguided.
Historically, the Little FTC Acts were designed to allow
more enforcement of FTCA-type regulations than the FTC was actually engaging
in.  Adding a private right of action
stripped away various safeguards against overenforcement “such as political
accountability, finite resources, and a statutory public interest requirement.”  Many courts didn’t like that and thus “invented
limiting principles to restrict the scope of litigation,” but this response was
lacking in principle.  Specifically, in
New York, the 1970 version of Section 349 allowed only the AG to sue, while in 1980,
the Legislature extended a cause of action to “any person who has been injured
by reason of any violation of this section.”
This broad language clearly allowed both consumers and
non-consumers to sue, but then “some businesses tacked Section 349 claims onto
ordinary commercial disputes,” which went too far.  Thus,  courts
limited standing to conduct that is “consumer-oriented,” a rule that “strikes
an appropriate balance by preventing businesses from tacking deceptive
practices claims onto their purely commercial disputes while also allowing
affected businesses to act as vicarious defenders of consumers.”  But a practice commentary published in 1988
by Richard A. Givens, a former regional director of the FTC “invented the
principle that trademark infringement actions fall outside of the scope of
Section 349.”  Courts followed that
commentary, making it the majority view.
The majority view was unpersuasive.  “The text of the statute outlaws all
deceptive conduct, which would appear to include trademark infringement claims.
The text may not be dispositive, but there must at least be a reason to depart
from such clear language.” There was not. 
First, there was reason to think that the legislature intended to
include trademark infringement in the consumer protection statute, and
certainly didn’t intend to exclude
it. “The motivating concern behind Section 349 was the perceived inadequacy of
the existing set of consumer protection laws targeted at specific conduct,” and
so Section 349 was designed to be “an umbrella covering all forms of deceptive
conduct.” The drafters even “intentionally chose not to reject other proposed
legislation that included enumerated prohibitions,” to avoid any judicial limitation
to acts of a similar nature. But included on that list—the list that drafters
thought was too narrow!—were practices likely to cause “confusion or of
misunderstanding as to affiliation, connection, or association with, or
certification by, another.”  The drafters
even included trademark in their survey of existing laws they “hoped to
encompass and expand upon.”  “Given this
background, the logical conclusion is that the legislature intended to include
trademark infringement in the ambit of Section 349. After all, … trademark
protections are a form of consumer protection.”
Second, the policy concerns were unpersuasive. Though Section
349 provides for one-way attorney fee shifting, such awards are
discretionary.  And the minority view wouldn’t
open the floodgates for trademark claims unrelated to consumer protection
because the requirement of materiality would limit claims: “a plaintiff by
definition cannot prevail without proving that deception is likely to misdirect
consumers’ purchases, which is precisely the harm that the statute seeks to
Third, courts in the majority have argued that consumer-oriented
harm has to be enough to justify FTC intervention, but the Supreme Court has explicitly
found that mere confusion is sufficiently within the public interest to warrant
FTC intervention:
If consumers or dealers prefer to
purchase a given article because it was made by a particular manufacturer or
class of manufacturers, they have a right to do so, and this right cannot be
satisfied by imposing upon them an exactly similar article, or one equally as
good, but having a different origin. … The result of respondents’ acts is
that such purchasers are deceived into purchasing an article which they do not
wish or intend to buy, and which they might or might not buy if correctly
informed as to its origin. We are of opinion that the purchasing public is
entitled to be protected against that species of deception, and that its
interest in such protection is specific and substantial.
FTC v. Royal Milling Co., 288 U.S. 212, 216-217 (1933). Additionally,
the FTC itself has been very interested in the deceptive use of endorsements, the
precise conduct at issue here, regardless of the subject matter.

Although punitive damages aren’t allowed under the Lanham Act,
they are under state law, so punitive damages claims based on Section 349 survived.

from Blogger

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