By: Moses Merakov
In addition to Section Five of the FTC Act and parallel state-level false advertising statutes (as discussed in part one), gamers can potentially pursue false advertising litigation under the Lanham Act and through federal securities laws.
The Lanham Act
The Lanham Act ,also known as the Trademark Act of 1946, is the federal statute that governs trademark infringement/dilution, false advertising, and related unfair competition. To win a false-advertising claim under Section 43(a) of the Lanham Act, a plaintiff must prove that the defendant made (1) a false or misleading statement of fact; that was (2) used in a commercial advertisement or promotion; that (3) deceives or is likely to deceive in a material way; (4) in interstate commerce; and (5) has caused or is likely to cause competitive or commercial injury to the plaintiff. However, this method of attack is generally unavailable for the general consumer. Only commercial competitors of the defendant, not typical consumers of the defendant’s product, can “allege an injury to a commercial interest in reputation or sales,” necessary to secure standing to sue. See Lexmark v. Static Control. Nevertheless, consumers can typically still pursue a false advertising lawsuit under comparable state laws. As mentioned in part one, Washington State’s Consumer Protection Act embodies false advertisement claims and functions similarly, in effect, to the Lanham Act.
Federal Securities Laws
In 2020, Cyberpunk 2077 instantaneously turned from one of the anticipated games of the year to one of the year’s biggest flops. The game arrived to store shelves with such an intense pandemonium of game breaking bugs that both Sony and Microsoft offered refunds to distraught purchases of the game and Sony removed the game from its online digital store. Almost immediately, two different law firms, the LA-based Schall Law Firm and the NYC-based Rosen Law Firm, filed class-action lawsuits against CD Projekt Red, the game’s developer, alleging that the company misled its investors. According to both firms, there were violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the U.S. Securities and Exchange Commission.
The Securities Exchange Act is complex, but essentially it is a composite of regulations that prevent “manipulative and deceptive” practices in securities trading. Section 10(b) of the Securities Exchange Act of 1934 [15 USC § 78j(b)] provides that:
“It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange… [to] use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement… any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
To recover damages in a private securities-fraud action under § 10(b), a plaintiff must prove “(1) a material misrepresentation or omission by the defendant; (2) scienter (a mental state embracing intent to deceive, manipulate, or defraud); (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” See Matrixx Initiatives, Inc. v. Siracusano.
In short, Rosen Law Firm and Schall Law Firm have an incredible burden in establishing that CD Projekt Red defrauded investors. The firms allege that CD Projekt Red lied to investors about the state of the game and failed to disclose that the game launch would be a financial catastrophe. To win, the firms would have to prove that CD Projekt Red made false or misleading statements, that it knew the statements were false or misleading and intentionally meant to mislead investors at the time the statements were made, and that those misleading statements would cause the company to be overvalued. Only litigation and proper discovery will truly tell whether there are enough facts for the firms to be successful, but some legal analysts say there is likely no case.
Unless you are a “competitor” of the videogame developer or an investor, the Lanham Act and federal securities laws are likely not your best avenue for recovering for that falsely advertised video game you bought.