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When You’re A False Advertiser, But It’s Someone Else’s Fault

Contribution and Indemnity Under The Lanham Act

Many statutes, including the Lanham Act, impose strict liability for false advertising.  Business may therefore incur liability even if a third party was partially or wholly at fault for the challenged inaccuracy.  For example, a cosmetics company that advertises its products as “all natural” may be held liable to a competitor through no fault of its own if an unscrupulous supplier substitutes synthetic pigments for the more expensive natural pigments that the company ordered and paid for.  Similarly, a food company that labels a product as containing “50 grams of protein per serving” may incur liability to consumers if the laboratory it retained to assay its products’ nutritional content botched those tests.

In the olden days, the law was content to leave whichever tortfeasor the plaintiff chose to sue on the hook for the whole tab—even if the chosen defendant was not the truly blameworthy party.  However, “[i]t is now widely recognized that fundamental fairness demands a sharing of the liability” in these situations.  In re Masters Mates & Pilots Pension Plan, 957 F.2d 1020, 1028 (2d Cir. 1992).  The equitable doctrines of contribution and indemnity developed to serve this role: they allow a defendant forced to pay more than her rightful share of the plaintiff’s damages to plead over against the fault-bearing third party and recover some (in the case of contribution) or all (in the case of indemnity) of her liability.  See generally Restatement (Second) Torts, §§ 886A–B.

One would think that contribution or indemnity would be available to advertisers in scenarios like the ones described above.  The Restatement is clear that these remedies should be available for “all torts, including not only negligence but also misrepresentation, defamation, injurious falsehood, nuisance, or any other basis of tort liability.”  Restatement (Second) Torts § 886A, comment b (emphasis added).  And, although a state-by-state survey is beyond the scope of this post, some courts have indeed allowed indemnity or contribution for false-advertising claims brought under state law.  See, e.g., Nestlé Purina PetCare Co. v. Blue Buffalo Co., 129 F. Supp. 3d 787, 793–94 (E.D. Mo. 2015) (recognizing indemnity and contribution for potential liability incurred by advertiser for “unjust enrichment and unfair competition under Missouri common law”).

Unfortunately, in the federal Lanham Act context, the law of contribution and indemnity has gone badly off course.  The trouble started three decades ago, with the Second Circuit’s decision in Getty Petroleum Corp. v. Island Transportation Corp., 862 F.2d 10 (2d Cir. 1988).  Getty Petroleum observed that “[n]o express right of contribution exists under the Lanham Act,” and concluded from this fact that it would be “inappropriate to imply such a right.”  Although no other circuit has decided the question, numerous federal district courts have followed Getty Petroleum, generally with little or no independent analysis.  See, e.g., Wagner v. Mastiffs, 2010 U.S. Dist. LEXIS 23100, at *27–29 (S.D. Ohio Mar. 12, 2010) (stating that “[c]ourts have consistently concluded that there is no right to indemnification or contribution under the Lanham Act”; citing Getty Petroleum and other decisions following it).

Getty Petroleum—and, by extension, all of the decisions that follow its precedent—relies on the Supreme Court’s decision in Northwest Airlines v. Transporation Workers Union, 451 U.S. 77 (1981), which refused to imply a right to contribution under two federal employment discrimination statutes that lacked express provisions for it: the Equal Pay Act and Title VII of the Civil Rights Act of 1964.  In so holding, the Supreme Court observed that liability for employment discrimination was “entirely a creature of federal statute” and had no basis in the common law.  Furthermore, the statutes that created this liability were both “comprehensive legislative scheme[s]” that “includ[ed] an integrated system of procedures for enforcement.”  Because Congress had designed and built these statutory schemes from the ground up, yet said nothing about contribution in their otherwise “comprehensive” provisions, the most reasonable inference was “that [such] a remedy was deliberately omitted.” 

That is all well and good when it comes to the Equal Pay Act and Title VII.  But as the Supreme Court later clarified, this same chain of inference does not apply to all statutes.  In Musick, Peeler & Garrett v. Employers Insurance of Wausau, 508 U.S. 286 (1993), the Supreme Court considered whether to imply a right of contribution for liability imposed under § 10(b) of the Securities Exchange Act of 1934.  Distinguishing Northwest Airlines, Musick answered that question in the affirmative.  Unlike liability under the Equal Pay Act and Title VII, the private right of action under § 10(b) began its life as a creation of the courts—albeit one that Congress later “acknowledg[ed]” and “accepted.”  Although Congress said nothing about contribution when it ratified this court-created theory of liability, under these circumstances—unlike those in Northwest Airlines—Congress’s silence was not most reasonably construed as a deliberate omission.  Given the court-created nature of the claim, the better inference was that Congress had left it to the judiciary to “elaborat[e] … the scope” of the liability theory that it had pioneered.

When the Second Circuit decided Getty Petroleum, it did not have the benefit of the Supreme Court’s later decision in Musick.  If it had, the decision would likely have come out the other way.  See David Hricik, Remedies of the Infringer, 28 Tex. Tech. L. Rev. 1027, 1059 (1997) (noting that Musick “indicat[es] that Getty … was incorrectly decided”).  After all, with the Lanham Act, “Congress [did] not institute[] a full-scale federal regulatory scheme” from the ground up, as it did with the Equal Pay Act and Title VII.  Atrezzi, LLC v. Maytag Corp., 436 F.3d 32, 42 (1st Cir. 2006).  Instead, the Lanham Act was meant to “provide[] a federal forum for what is in substance a traditional common-law claim”—the tort of unfair competition.  Id.; see also AT&T v. Winback Conserve Program, 42 F.3d 1421, 1433 (3d Cir. 1994) (“The Lanham Act is derived generally and purposefully from the common law tort of unfair competition…. The Act federalizes a common law tort.”).  In other words, the Lanham Act took a court-created body of common-law rules and transplanted it to federal soil, roots and all.  What is more, when it did so, Congress expressly instructed courts to apply the traditional “principles of equity” that governed at common law. 15 U.S.C. §§ 1115(b)(9), 1117; see WarnerVision Entm’t v. Empire of Carolina, 101 F.3d 259, 261 (2d Cir. 1996) (noting “the stated intent of Congress that the Lanham Act would be governed by equitable principles” (citing S. Rep. No. 515, 100th Cong., 2d Sess. 30 (1988), reprinted in 1988 U.S.C.C.A.N. 5577, 5592)). 

The equitable cast and common-law pedigree of the Lanham Act make it a prime candidate for implied rights of indemnity and contribution under Musick. Indeed, citing these features of the statute, courts “routinely have recognized the propriety” of applying other common-law doctrines “to determine the scope of liability.”  AT&T, 42 F.3d at 1433; see, e.g., Petroliam Nasional Berhad v. GoDaddy.com, Inc., 737 F.3d 546, 549 (9th Cir. 2013) (“Due primarily to the common law origins of [the statute], courts have concluded that the Lanham Act [recognizes] a cause of action for secondary liability.”). And courts have done so even while acknowledging that this type of judicial creativity would be improper under most statutory schemes.  In AT&T, for example, the Third Circuit granted that courts must ordinarily “be wary” of going beyond “the statutory language itself”—yet it did not hesitate to “import the doctrines of agency and apparent authority” into the Lanham Act because of the statute’s common-law origins.  Similarly, the Eleventh Circuit has recognized a “judicially developed” claim for contributory false advertising—despite the general preference for “plain language” statutory construction—because the Lanham Act “has its sources in [the] common law.”  Duty Free Americas, Inc. v. Estée Lauder Cos., 797 F.3d 1248, 1276 (11th Cir. 2015).

By all rights, the same should be true of contribution and indemnity.  These, too, are common-law doctrines “deriving from [the] principles of equity,” Adkinson v. Int’l Harvester Co., 975 F.2d 208, 213 (5th Cir. 1992)—the same “principles of equity” that governed unfair competition claims at common law, and that Congress instructed the courts to carry forward under the Lanham Act. However, since Getty Petroleum was decided three decades ago, that decision’s precedential pull has been nigh irresistible: citing that case (and that case’s direct progeny), most courts have continued to reject indemnity and contribution rights under the Lanham Act out of hand.  In relying uncritically on Getty Petroleum, these courts overlook both the Supreme Court’s subsequent clarification in Musick that not all statutes are created equal when it comes to implying indemnity and contribution rights, and the manifest differences between the Lanham Act and other federal statutes.

Just one court, it appears, has analyzed whether Musick undermined Getty Petroleum’s holding.  That court’s analysis, however, leaves much to be desired.  In Santana Products, Inc. v. Bobrick Washroom Equipment, Inc., 69 F. Supp. 2d 678 (M.D. Pa. 1999), the court found that the Lanham Act is more like Title VII than it is like § 10 of the Securities Exchange Act of 1934.  Thus, it held, the proper analysis was provided by Northwest Airlines and not by Musick.  In reaching this conclusion, however, the court failed to note either the common-law origins of the Lanham Act or Congress’s express command that equitable principles be applied in its interpretation.  The court also reasoned that an infringer such as the defendant was “not a member of the class intended to be protected under the Lanham Act; instead, [it was] a party intended to be punished under the Lanham Act.”  But this, too, misses the mark: the Lanham Act does not seek to “punish” anyone.  To the contrary, “[u]nder the statutory scheme the emphasis is on an award constituting ‘compensation [to the plaintiff] and not a penalty [to the defendant].’”  Getty Petrol. Corp. v. Bartco Petrol. Corp., 858 F.2d 103, 105 (2d Cir. 1988) (quoting 15 U.S.C. § 1117(a)) (emphasis added); see also Martinizing Int’l, LLC v. BC Cleaners, LLC, 855 F.3d 847, 852 (8th Cir. 2017) (“[T]he Lanham Act is grounded in equity and bars punitive remedies”).  And what is it, if not punitive and inequitable, to leave a defendant on the hook for 100% of the plaintiff’s damages when it bears only some—or even none—of the actual blame?

Someday, a thoughtful court will break the streak and recognize that Getty Petroleum and its progeny are no longer good law, if they ever were.  Until then, advertisers faced with Lanham Act liability should preserve their contribution and indemnity claims and point out why they should rightfully be recognized.  In addition, to the extent they also face analogous state-law claims, advertisers may be able to pursue indemnity and contribution with respect to the state-law claims, even in courts that refuse to look past Getty PetroleumSee, e.g., Nestlé Purina, 129 F. Supp. 3d at 793-94 (reaching this split holding); see also John T. Cross, Contributory Infringement and Related Theories of Secondary Liability for Trademark Infringement, 80 Iowa L. Rev. 101, 141–42 (1994). This self-contradictory outcome hardly makes sense—but for faultless false advertisers seeking an equitable outcome, half a loaf is better than nothing.