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The Rise of False Advertising: White-Label Manufacturers on The Internet

Many U.S. companies are facing increasing competition from Chinese and international companies flooding the market with cheaper white-label options. False advertising is a major concern for these U.S.-based companies. It’s used to lure consumers into purchasing white-label products with the empty promise of better or equal performance. This misleading sales strategy has cost many manufacturers sales and revenue.

Manufacturers are not immune to deceitful practices of international market entrants. The exact type of false advertising that manufacturers are exposed to by Internet competitors is prohibited under U.S. trademark law. A federal false advertisement claim is an effective and cost-effective way to stop the loss of sales due to dishonest competitors.

INFLATED PERFORMANCE SPECIFICATIONS AND PRODUCTS WHITE-LABEL

White-label products can be mass-produced generic products that are later customized for different brands. This customization can often be as simple as adding a logo to the product. White-label products can then be “re-branded” later and sold by multiple companies to consumers. White-label products can be more expensive than branded products because they are generic. However, they do not have the same performance as branded products. White-label products, which are relatively new on the market and have no brand recognition, are often priced lower than better-known brands.

A recent trend is white-label products being advertised at lower prices and with exaggerated product performance specifications. White-label manufacturers purposefully exaggerate their product performance standards in order to get a foothold on the market and build their brands. There are many examples: A white-label flashlight that has a high brightness and a battery with a long life span, a white label webcam with high picture resolution, an overstated picture resolution, and a massage gun with elaborate percussions per minute. White-label makeup claims to be organic. Well-known brands cannot compete when a white-label product is cheaper and has false product specifications. This sales disruption can be fought by well-known brands who should use the powerful defense provided by U.S. trademark law.

FALSE ADVERTISING UNDER TRADEMARK LAW

The U.S. trademark law (also known as the Lanham Act) prohibits false advertising. Specifically, it prohibits “any false designation or misleading description of fact or false or misleading representation[s]of fact that…in commercial advertising or promotion, misrepresents nature, characteristics, [or] quality…of his/her or another person’s goods, services or commercial activities.”

The U.S. Supreme Court recently stated that the Lanham Act uses, and even relies on, competitors to enforce its anti-fraud enforcement measures. The Supreme Court recognized that rivals are the most knowledgeable about each other’s product advertisements and representations.

Manufacturers and distributors of products are likely to have a deep understanding of how consumers use certain marketing and sales strategies. This market knowledge may allow them to spot unfair competition practices faster than regulators and agency rulemakers …. Lanham Act suits use this market insight to empower private parties to sue other competitors to protect their rights on a case by case basis.

A competing flashlight manufacturer is the best way to determine if a flashlight manufacturer has misrepresented its product’s brightness.

The Supreme Court emphasized that manufacturers do not need to wait for government enforcement. They can bring a private suit against their competitors for false advertising under the Lanham Act. To prove a false advertisement claim, a manufacturer must demonstrate the following: (1) The defendant made misleading or false statements about its products or another’s products; (2) The existence of actual deception or a likelihood that confusion was created by consumers of those products; (3) The deception is material or likely to influence a customer’s buying decisions; (4) The advertised goods travel in interstate commerce; (5) A likelihood of injury to plaintiff such as lost sales.

False advertising claims under the Lanham Act have the added benefit of allowing plaintiff manufacturers to bring the case before federal judges and in federal court. Federal courts are a better venue for this type of case. This would likely give the court additional jurisdiction over any state-law unfair competition claims. These often award double or triple damages.

THIS IS WHAT IT MEANS FOR U.S.MANUFACTURERS

Many manufacturers believe that it is impossible to stop competitors from making false claims about their products. This can lead to a loss of competitive advantage. Manufacturers are not immune to deceptive practices, as U.S. trademark law is designed to protect against such issues. False advertising claims are cost-effective, simple, and effective in protecting against misrepresentations of white label products, which can lead to an uneven playing field.