Are retailers responsible for advertising claims made on the packaging of the third party products that they sell in their stores? In other words, if a retailer carries another company's product on its shelves, does that make the retailer responsible for false claims that appear on the packaging?
In Outlaw Laboratory v. Shenoor Enterprise, a manufacturer of dietary supplements for men sued a number of convenience stores for false advertising under the Lanham Act because they sold a competing product that the manufacturer said contained false "all natural" and similar claims.
Several of the defendants moved to dismiss, and United States District Court for the Northern District of Texas agreed that the plaintiff had failed to state a claim against the retailers.
In the Fifth Circuit, in order state a claim under the Lanham Act, the plaintiff must allege: (1) that the defendant made a false statement of fact about the product in a commercial advertisement; (2) that the statement actually deceived or has a tendency to deceive a substantial segment of the audience; (3) the deception is likely to influence the purchasing decision; (4) the defendant caused the false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result.
Here, the court held that the plaintiff failed to sufficiently allege that the defendants themselves made a false statement in the context of commercial advertising or promotion. The court said that simply selling the products in-store was not enough. The court wrote, "Here, Defendants undoubtedly sell many products -- should they be responsible for scrutinizing and determining the veracity of every claim on every product label in their stores simply because they sell the product?"
While this is certainly a good decision for retailers, I wouldn't recommend starting to stock up on the miracle cures just yet. First, the court did not say that a retailer could never be responsible for what's on third party packaging, but just that the plaintiff hadn't alleged sufficient facts here. While the retailer may not have known whether the "all natural" claims were truthful, the case may have come out very differently if the claims were ones that were obviously false. Second, this case is only about a brick and mortar retailer carrying a product on its shelves; the court specifically distinguished the situation where the product is carried online and the retailer republishes a false claim. Third, it's not at all clear to me that another court interpreting the Lanham Act, or a court evaluating state law false advertising or unfair competition claims, would come out the same way. And, finally, while as matter of enforcement policy the Federal Trade Commission or another regulator may often choose not to prosecute a retailer for selling products that have false claims on their labels, I think most would certainly take the position that they have the right to do so.
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