A federal appeals court recently held that the publisher of a self-described “neutral” product review guide could face civil liability for false advertising because it received indirect financial benefits from the manufacturer of products that it reviewed favorably and gave unfavorable treatment to equivalent products made by the manufacturer’s competitor.
The case, which explores whether product reviews constitute speech protected by the First Amendment, has potentially significant implications for California businesses that leverage influencers and other third-party, online channels to promote their goods and services.
What The Case Is About
In a complaint filed in federal district court in San Diego, Ariix, LLC, which makes nutritional supplements, alleged that NutriSearch Corporation and its owner, Lyle MacWilliam, published a guide to nutritional supplements that falsely billed itself as a neutral source of product reviews and information. Ariix claimed that in reality, the guide’s product reviews and endorsements were secretly rigged in favor of Ariix’s chief competitor, Usana Health Science, Inc., to Ariix’s detriment. In other words, it alleged that the guide in fact was a cleverly-disguised and deceptive advertisement for Usana’s products.
Ariix claimed the product reviews in the guide amounted to false advertising under the Lanham Act, a federal statute which, among other provisions, gives a person the right to sue for harm caused by misrepresentations about “the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.”
The district court threw out Ariix’s suit, twice, rejecting the notion that product reviews favoring one product over another constituted the type of speech restricted by the Lanham Act, even if the reviewer and the producer of the favored product had a “cozy relationship.”
A divided panel of the Ninth Circuit Court of Appeals disagreed. Reversing the district court’s ruling, it held that a Lanham Act false advertising violation may have occurred if NutriSearch and MacWilliam, while billing themselves as neutral product reviewers, received indirect financial and in-kind benefits from Usana as a reward for giving favorable reviews and accolades to Usana products, but not to Ariix’s comparable products. The appeals court sent the case back to the district court for further proceedings consistent with its holding.
Why It Matters
Businesses that leverage alternative advertising and marketing strategies like social media influencer campaigns and courting consumer product reviewers should take note of this decision. It signals a potentially troubling expansion of Lanham Act false advertising liability into forms of speech that have historically been accorded the highest degree of First Amendment protection.
The Lanham Act’s limitations apply only to what is known as “commercial speech,” which includes advertising or promoting goods and services. This category of speech enjoys fewer protections under the Constitution than neutral speech, which is why it is constitutional for the Lanham Act to regulate it.
Historically, courts have limited the Lanham Act liability for false advertising only to commercial speech about goods or services the speaker sells or is directly paid by a seller to promote. The appeals court’s decision, however, extends the reach of the law to speech by product reviewers, influencers, and similar speakers who stand only to gain indirectly, after-the-fact, from promoting or endorsing the quality of someone else’s products.
What’s more, the logic of the opinion does not stop at holding the speakers themselves accountable for false advertising. By extension, it could mean that businesses may face Lanham Act liability for false or misleading statements made by influencers or reviewers about their or a competitor’s products if the businesses appear to reward those speakers with indirect, after-the-fact, financial or in-kind benefits (such as speaking engagements at an industry conference, or free products and merchandise).
The Takeaway
Social media and internet-centered promotional strategies continue to blur the lines between neutral and commercial speech. Businesses that feel wronged or disadvantaged by the evolution of those channels have started to push back.
The appeals court’s decision to allow Ariix to sue a product reviewer for false advertising because of the reviewer’s cozy, remunerative relationship with Ariix’s competitor means business leaders may need to weigh the legal and financial risks of cultivating informal, mutually-beneficial arrangements with influencers, product reviewers and similar online speakers.