The Lanham Act and the Potential for Liability When Businesses Advertise Online
2.6.2025
In today’s digital marketplace, many businesses have come to rely on online marketing campaigns, often handled by outside agencies. Any business, whether they do their marketing in-house or hire an outside service, should be aware of the potential for liability under the Lanham Act.
This article will examine some of the ways an unsuspecting client could be liable for false advertising on the internet without even knowing it. Courts are just beginning to grapple with some of these emerging trends. But as Judge Learned Hand wrote, “there is no part of the law which is more plastic than unfair competition, and what was not reckoned an actionable wrong 25 years ago may have become such today.”[1]
False Advertising Under the Lanham Act
Under Section 43(a) of the Lanham Act, false advertising is the publication of any false or misleading description or representation of fact concerning goods or services that misrepresents their nature, characteristics, qualities or geographic origin.[2] To establish false advertising, a competitor must plead and prove that the challenged message is “(1) either literally or impliedly false, (2) material, (3) placed in interstate commerce, and (4) the cause of actual or likely injury to the plaintiff.”[3]
What constitutes a “literally or impliedly false” message is by far the most litigated issue in this area. While a literally false message is “false on its face,” an impliedly false message is “not literally false, [but] is nevertheless likely to mislead or confuse consumers.”[4] Where the challenged message is literally false, consumer deception is presumed. Where the challenged message is impliedly false, consumer deception must be proved typically through expensive consumer surveys and studies.
Notably, the challenged message need not mention a competitor by name as the key inquiry is the plaintiff’s “injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.”[5] For example, even though it did not target a specific named competitor, an olive oil producer labeling its chemically processed olive oil as “100% Pure Olive Oil” was deemed literally false at the preliminary injunction stage in a lawsuit filed by an association of olive oil producers.[6]
The Sharp Teeth
As for damages, the courts have “some degree of discretion in shaping th[e] relief.”[7] Thus, aside from injunctive relief, a business accused of false advertising could face significant monetary damages, including the competitor’s lost profits, disgorgement of its own profits, reputational damages, treble damages, corrective advertising costs and attorney’s fees. Upheld jury awards regularly reach tens of millions of dollars.
But the legal fees will bankrupt a company before a jury is even selected. And to make matters worse, when consumers get wind of it, a business might also endure a class action lawsuit arising out of the same allegations. This is precisely what happened to the previously mentioned olive oil producer. A year after settling that lawsuit, the company filed for Chapter 11 bankruptcy due to legal fees and an impending consumer class action lawsuit arising out of the “100% Pure Olive Oil” labels.[8]
Keyword Bidding Gone Wild
Google search is the number one driver of traffic to businesses. But how are these search results prioritized? Through the Google Ads platform, advertisers bid on keywords so that their website links and ads appear higher than their competitors in the search results. This is a great way to be seen and drive traffic, but there are a few ways that an unmonitored Google Ads campaign could subject a business to significant liability.
A common Google Ads strategy is to bid on a competitor’s name so that the advertiser’s business is elevated above the competitor in search results. For example, McDonald’s could outbid Burger King for the keywords “Burger King,” resulting in appearing higher in search results when the words “Burger King” are entered. Standing alone, there is likely nothing unlawful about this practice.[9] The Second Circuit has yet to directly address keyword bidding in the false advertising context. However, in the trademark context, courts allow keyword bidding and prioritize consumer confusion.[10] Thus, liability may attach if the search result or the website landing page includes the competitor’s name or causes consumer deception.
Of particular concern in Google Ads is a tool called dynamic keyword insertion, which allows advertisers to dynamically update displayed ads to include the user’s search query. For example, if you search for “toddler shirts,” you might see a sponsored link that says, “Buy Toddler Shirts on Sale.” When used properly, this tool creates targeted ads that will increase consumer engagement. However, when used improperly, the dynamically inserted keyword could misrepresent the product or service or suggest an association with a competitor’s brand when there is none. To illustrate, if you search for “cotton toddler shirts” but the advertiser now manufactures polyester shirts only, liability may attach for a sponsored link that says, “Buy Cotton Toddler Shirts.” Additionally, if a competitor’s name or a phrase resembling it is included on the advertiser’s dynamic keywords list, this could mislead consumers to incorrectly believe that they are visiting a website associated with the competitor.
Google Ads is one of the most powerful tools for both brick-and-mortar and online businesses alike. However, business owners should disengage the cruise control and pay close attention to their Google Ad campaigns before a lawsuit threatens their livelihood.
Affiliate Marketing Pitfalls
While researching a product or service on the internet, you have likely come across blogs and videos by influencers concerning said product or service. Compensating third parties for these reviews and endorsements is not inherently unlawful and is a common practice known as affiliate marketing.
Of course, a business can be liable to a competitor if the influencer materially misleads consumers. However, liability may also attach if the influencer fails to adequately disclose an association with the advertiser. Often, these paid reviews and testimonials “look” objective and impartial, but behind the scenes, the seemingly “independent” reviewer is being compensated by the advertiser – typically on a per-click or per-order basis through a uniquely coded hyperlink. There might be a tiny disclosure hidden on another section of the website or on the bottom of the page, but the Federal Trade Commission requires “clear and conspicuous” disclosure of these connections [11] and courts routinely consider FTC guidelines as persuasive authority in false advertising cases.[12]
Businesses freely enroll third parties into their affiliate marketing programs without reviewing or monitoring their content. In this age of shock content, a wildly popular influencer could conceivably ruin a business with a single disparaging remark about a competitor. While affiliate marketing is a great way for businesses to reach new customers, these programs must be monitored closely for Lanham Act compliance.
Ignorance Is Not Bliss
Hiring a local digital marketing firm to implement and administer the Google Ads and affiliate marketing programs should insulate a business from liability, right? Wrong. Under the Lanham Act, intent and bad faith are not elements in what is a “regime of strict liability.”[13] Thus, although the marketing company may be a co-defendant in the lawsuit, the business is ultimately responsible for the harm inflicted on competitors.
Kamran Hashmi is the owner and principal attorney of Hashmi Law Firm in Rochester, New York. He devotes a large portion of his practice to advising and representing clients in business-to-business disputes, including false advertising under the Lanham Act.
Endnotes
[1] Ely-Norris Safe Co. v. Mosler Safe Co., 7 F.2d 603, 604 (2d Cir. 1925).
[2] 15 U.S.C. § 1125(a)(1)(B)
[3] Church & Dwight Co. v. SPD Swiss Precision Diagnostics, 836 F3d 153, 168 (2d Cir 2016).
[4] Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93, 112 (2d Cir. 2010).
[5] Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 140 (2014).
[6] See N. Am. Olive Oil Ass’n v. Kangadis Food Inc., 962 F. Supp. 2d 514 (S.D.N.Y. 2013).
[7] Spotless Enterprises, Inc. v. Carlisle Plastics, Inc., 56 F. Supp. 2d 274, 278 (E.D.N.Y. 1999).
[8] Kangadis Files for Bankruptcy Following Class Action Suits, Olive Oil Times, June 9, 2014, https://www.oliveoiltimes.com/business/north-america/kangadis-bankruptcy/40054.
[9] See Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137 (9th Cir. 2011).
[10] See 1-800 Contacts, Inc. v. WhenU.Com, Inc., 414 F.3d 400 (2d Cir. 2005).
[11] FTC Guides Concerning Use of Endorsements and Testimonials in Advertising, 16 C.F.R § 255.0 (2023).
[12] See e.g., Weight Watchers Int’l, Inc. v. Stouffer Corp., 32 F.3d 68 (2d Cir. 1994).
[13] Spotless Enterprises, Inc. v. Carlisle Plastics, Inc., 56 F. Supp. 2d 274, 288 (E.D.N.Y. 1999).
