Court allows false advertising suit over calling take-out pizza restaurant “fast-casual”

Marketing firms take note: what you say about one client on your website will get noticed by other clients, and they may sue.

Plaintiff San Francisco Oven hired defendant Fransmart to market San Francisco Oven’s “fast-casual brick-oven” pizza restaurant to potential franchisees. After San Francisco Oven and Fransmart entered into an agreement, Fransmart changed its website to describe another pizza restaurant, Z-Pizza, as also employing the “fast-casual brick oven” concept.

San Francisco Oven believed that this information about Z-Pizza was false, and that Fransmart had changed the description to steer potential franchisees away from San Francisco Oven and to Z-Pizza. Before San Francisco Oven hired Fransmart, the Fransmart website had listed Z-Pizza as having merely “take-out and delivery and limited in-restaurant dining.”

After learning of the changed information on the website, San Francisco Oven sued Fransmart for false advertising under Section 43(a) of the Lanham Act, 15 U.S.C. §1125(a). Fransmart moved to dismiss, arguing that San Francisco Oven’s complaint did not allege sufficient facts upon which subject matter jurisdiction could be based. The court disagreed, and denied Fransmart’s motion.

In its analysis, the court looked to the case of Scotts Co. v. United Indus. Corp., 315 F.3d 264 (4th Cir. 2002) to recast the elements of a 43(a) claim as follows: (1) the defendant made a false or misleading description of fact or representation of fact in a commercial advertisement about his own or another’s [goods or services]; (2) the misrepresentation is material, in that it is likely to influence the purchasing decision; (3) the misrepresentation actually deceives or has the tendency to deceive a substantial segment of its audience; (4) the defendant placed the false or misleading statement in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its [goods or services].

The court held that San Francisco Oven’s allegations of Fransmart’s statements about Z-Pizza satisfied these elements. The statements on the website described goods and services of another company. The representations were material in that they dealt with the actual subject about which Fransmart was hired (i.e., the franchise concept). The representations had the tendency to deceive, due to the alleged mischaracterization of Z-Pizza’s concept. By posting the statements online, Fransmart placed them into interstate commerce. Finally, San Francisco Oven had properly alleged that diverted franchisees to Z-Pizza would cause damage.

San Francisco Oven, LLC v. Fransmart, LLC, 2005 WL 1838125 (E.D.Va., July 27, 2005).