Appendix — Phoenix of Broward, Inc. v. McDonald's Corp. (No. 07-659)

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APPENDIX A

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 06-14726

D.C. Docket No. 06-00394-CV-CAP-1

PHOENIX OF BROWARD, INC.,

On behalf of Itself and Similarly

Situated Burger King Franchisees,

1101 S. Rogers Circle, Suite 10,

Boca Raton, Florida 33487,

Plaintiff-Appellant,

versus

MCDONALD’S CORPORATION,

One McDonald Plaza, Oak Brook,

Illinois 60523,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Georgia

(June 22, 2007)

FILED

U.S. COURT OF APPEALS, ELEVENTH CIRCUIT

~ JUNE 22, 2007

THOMAS K. KAHN, CLERK

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Before PRYOR, KRAVITCH and ALARCON,” Circuit

Judges.

KRAVITCH, Circuit Judge:

The primary issue in this appeal is the proper

test for determining whether a party has prudential

standing to bring a false advertising claim under

§ 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).

Phoenix of Broward, Inc. (“Phoenix”) appeals the

district court’s dismissal of its false advertising claim

against McDonald’s Corporation (“McDonald’s”) for

lack of prudential standing. For the reasons that

follow, we adopt the test for prudential standing set

forth in Conte Bros. Automotive, Inc. v. Quaker

State-Slick 50, Inc., 165 F.3d 221, 225 (3d Cir. 1998),

and affirm the district court’s dismissal.

I. BACKGROUND

Burger King Corporation (“Burger King”)

owns, operates, and franchises fast food restaurants

throughout the world. Today, there are

approximately 11,000 Burger King restaurants

worldwide. Appellant Phoenix is a licensed Burger

King franchisee that owns and operates a Burger

King franchise in Fort Lauderdale, Florida.

McDonald’s, like Burger King, owns, operates, and

franchises fast food restaurants throughout the

world, and there are approximately 30,000

McDonald’s restaurants worldwide. As competitors

in the fast food industry, both McDonald’s and

Burger King have employed a variety of marketing

* Honorable Arthur L. Alarcon, United States Circuit

Judge for the Ninth Circuit, sitting by designation.

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and promotional strategies to attract customers,

generate sales, and ensure customer loyalty.

From 1995 to August 2001, McDonald’s offered

customers the opportunity to participate in various

promotional games such as “Monopoly Games at

McDonald’s,” “The Deluxe Monopoly Game,” “Who

Wants to be a Millionaire,” and “Hatch, Match and

Win.” Each of the promotional games featured low-

value, mid-value, and high-value prizes. The low-

value prizes included low-dollar cash awards and food

and beverage items, while the high-value prizes

included automobiles and cash awards of up to $1

million dollars. In general, customers could win the

$1 million grand prize in one of two ways—by

obtaining one of the rare $1 million, instant-winner

game pieces or by collecting and matching a

combination of certain other game pieces.

_ McDonald’s conducted an extensive advertising

and marketing campaign for each of the games it

offered. In these advertisements, McDonald’s

represented that all customers who participated in

the games had a fair and equal opportunity to win

the offered prizes. The advertisements also

represented the specific odds of winning certain

prizes, including the high-value prizes.

In approximately April 2000, the Federal

Bureau of Investigation (“FBI”) began investigating

the promotional games. While the games were still

underway, the FBI informed McDonald’s that there

were problems with the random distribution of its

game pieces. In spite of this alleged knowledge,

McDonald’s continued to advertise that customers

had a fair and equal opportunity to win the offered

prizes, including the high-value prizes.

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On August 21, 2001, the United States

Department of Justice (“DOJ”) and the FBI

announced that between 1995 and August 2001,

certain of McDonald’s promotional games had been

compromised by a criminal ring led by an employee of

Simon Marketing, Inc. (“Simon”), the company

McDonald’s engaged to operate the promotional

games. From approximately 1995 to August 2001,

Simon’s Director of Security, Jerome Jacobson,

diverted at least $20 million in high-value prizes by

embezzling winning, high-value game pieces and

distributing them to a network of “winners” who

claimed (or recruited others to claim) the prizes from

McDonald’s. The DOJ and FBI announced that eight

individuals, including Jacobson, had been arrested in

connection with the scheme. In announcing the

arrests, the U.S. Attorney General stated that the

“fraud scheme denied McDonald’s customers a fair

and equal chance of winning.” In a corporate press

release issued after the arrests, McDonald’s

Chairman and Chief Executive Officer described the

scheme as “a highly sophisticated inside game of

fraud and deception.”

On or about April 5, 2002, Jacobson pleaded

guilty to charges of conspiracy and mail fraud.

Approximately 50 other persons either pleaded guilty

or were convicted in connection with the conspiracy.

Following the disclosure of the scheme,

McDonald’s created an independent task force to

review all of its promotional practices, and it

introduced additional security procedures to ensure

the integrity of future promotional games.

Nonetheless, consumers throughout the U.S. filed

several class actions against McDonald’s, alleging

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consumer fraud, negligence, and unjust enrichment.

On April 19, 2002, McDonald’s settled these class

actions by, inter alia, agreeing to implement a $15

million “Instant Giveaway,” providing class members

and the general public an opportunity to win fifteen

$1 million prizes.

On February 22, 2006, Phoenix filed the

instant action against McDonald’s on behalf of itself

and all similarly situated Burger King franchisees (a

proposed class of approximately 1,100 franchisees),

alleging false advertising in violation of § 43(a) of the

Lanham Act. Specifically, Phoenix alleged that

McDonald’s misrepresented that each player in its

promotional games had a fair and equal chance of

winning high-value prizes and misrepresented the

specific odds of winning high-value prizes. According

to Phoenix, McDonald’s promotional games were

“rigged from approximately 1995-2001,” those games

lured customers away from Burger King and yielded

an “unnatural” spike in profits for McDonald’s, the

high-value prizes (including the $1 miilion prizes)

were diverted from McDonald’s customers, and the

“advertising campaigns that touted million dollar

prizes were literally false.” Phoenix also alleged that

after learning that the games had been compromised,

McDonald’s knowingly and deliberately continued to

advertise the games as though customers had a fair

and equal chance of winning.

McDonald’s moved to dismiss Phoenix’s

complaint on the grounds that Phoenix lacked

prudential standing under the Lanham Act and, in

the alternative, that Jacobson’s theft was an

intervening cause of Phoenix's alleged injury. On

August 1, 2006, the district court issued a written

order granting McDonald’s motion and dismissing the

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action with prejudice. Noting that the Eleventh

Circuit had not addressed the appropriate standard

for determining whether a plaintiff has prudential

standing to bring a false advertising claim under

§ 43(a) of the Lanham Act, the district court surveyed

the case law of other circuits and adopted the five-

factor test set forth by the Third Circuit in Conte

Bros., 165 F.3d at 225, finding that test to be more

“persuasive” than the “categorical approach” adopted

by several other circuits. Applying the Conte Bros.

test, the district court concluded that Phoenix did not

have prudential standing to bring a false

advertisement claim under the Lanham Act against

McDonald’s. Phoenix now appeals.

Il. DISCUSSION

On appeal, Phoenix argues that the district

court erred in dismissing its complaint against

McDonald’s for lack of prudential standing. “We

review standing determinations de novo.” Bochese v.

Town of Ponce Inlet, 405 F.3d 964, 975 (11th Cir.

2005). “We review a district court’s grant of a motion

to dismiss de novo, taking as true the facts as they

are alleged in the complaint.” Owens v. Samkle Auto.

Inc., 425 F.3d 1318, 1320 (11th Cir. 2005).

“In every federal case, the party bringing the

suit must establish standing to prosecute the action.”

Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1,

11, 124 S.Ct. 2301, 2308, 159 L.Ed.2d 98 (2004). As

the Supreme Court has explained, standing

jurisprudence is comprised of “two strands: Article

III standing, which enforces the Constitution’s case-

or-controversy requirement, and prudential standing,

which embodies judicially self-imposed limits on the

exercise of federal jurisdiction.” /d. at 11-12, 124

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S.Ct. at 2308 (internal quotation marks and citation

omitted).

To demonstrate Article III standing, a plaintiff

must allege that (1) he has suffered an actual or

threatened injury, (2) the injury is fairly traceable to

the challenged conduct of the defendant, and (3) the

injury is likely to be redressed by a favorable ruling.

Primera Iglesia Bautista Hispana of Boca Raton, Inc.

v. Broward County, 450 F.3d 1295, 1304 (11th Cir.

2006).

McDonald’s does not dispute that the

allegations in Phoenix’s complaint satisfy these

constitutional standing requirements. Because the

issue of constitutional standing is jurisdictional,

however, we address it here. See Stee/ Co. v. Citizens

for a Better Envt, 523 U.S. 83, 91-93, 118 S.Ct. 1003,

1011, 140 L.Ed.2d 210 (1998) (stating that the

question of Article II] standing is jurisdictional and

should be addressed before issues of prudential and

statutory standing); Conte Bros., 165 F.3d at 225.

In its complaint, Phoenix alleges that “lals a

direct and proximate result of McDonald’s

false...advertising and unfair competition,

customers were diverted from Phoenix and its

Affiliated Franchisees, who accordingly not only lost

profits due, inter alia, to reduced sales, but also

incurred costs in connection with common

counteractive efforts to retain those customers.”

Although Phoenix does not allege that McDonald’s or

any of its employees participated in the theft that led

to the compromising of the high-value games

(allegedly rendering McDonald’s advertisements

false), Phoenix does allege that after McDonald’s

learned that the high-value games had been

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compromised, it knowingly and_ deliberately

advertised that customers had a fair and equal

opportunity to win high-value prizes. These

allegations satisfy the first two prongs of the

constitutional standing inquiry—Phoenix alleges that

it has suffered an actual injury that is fairly traceable

to McDonald’s alleged misconduct. See Primera

Iglesia, 450 F.3d at 1304. In relief, Phoenix requests,

among other things, “actual damages, in amounts to

be demonstrated at trial for the harms directly and

proximately caused by McDonald’s

false... advertising” and “other damages incurred,”

including “advertising costs incurred to respond to

the fixed promotional games.” If granted, this relief

would redress the injuries alleged and thus satisfies

the third prong of the standing inquiry. See id.

Based on the allegations in the complaint, we

conclude that Phoenix has satisfied the requirements

of constitutional standing.

Even where constitutional standing exists,

however, prudential considerations may preclude

standing. Wooden v. Bd. of Regents of Univ. Sys. of

Ga., 247 F.3d 1262, 1273 n.12 (11th Cir. 2001). We

therefore turn to the issue of prudential standing.

A. Whether Prudential Standing Doctrine

Applies to the Lanham Act

We must first determine whether Congress

intended to abrogate prudential standing doctrine in

passing § 43(a) of the Lanham Act. Section 43(a)

provides:

(1) Any person who, on or in connection

with any goods or services, or any

container for goods, uses in commerce

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any word, term, name, symbol, or device,

or any combination thereof, or any false

designation of origin, false or misleading

description of fact, or false or misleading

representation of fact, which—

(A) is likely to cause confusion, or to

cause mistake, or to deceive as to the

affiliation, connection, or association

of such person with another person,

or as to the origin, sponsorship, or

approval of his or her goods, services,

or commercial activities by ancther

person, or

(B) in commercial advertising or

promotion, misrepresents the nature,

characteristics, qualities, or

geographic origin of his or her or

another person’s goods, services, or

commercial activities,

shall be liable in a civil action by any

person who believes that he or she is or

is likely to be damaged by such act.

15 U.S.C. § 1125(a) (emphasis added).

The issue of whether prudential standing

doctrine applies to § 43(a) of the Lanham Act is one of

first impression in this circuit. The Third and Fifth

Circuits have addressed this ques*ion, and both have

held that Congress did not abrogate prudential

limitations on the standing of plaintiffs to bring suit

under § 43(a). See Conte Bros., 165 F.3d at 227-230;

Procter & Gamble Co. v. Amway Corp., 242 F.3d 539,

561-62 (5th Cir. 2001). We agree.

Congress is presumed to incorporate

background prudential standing limitations unless

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the statute expressly negates such principles.

Bennett v. Spear, 520 U.S. 154, 163, 117 S.Ct. 1154,

1162, 137 L.Ed.2d 281 (1997). Although § 43(a)’s use

of the term “any person” might lead to the conclusion

that Congress intended to negate the background of

prudential standing by allowing “any person” who

could achieve Article III standing to bring suit, “the

Supreme Court has twice held that Congress has not

expressly abrogated prudential .standing doctrine

merely by passing a statute the text of which admits

a broad interpretation.” Conte Bros., 165 F.3d at 227.

For example, in Associated General Contractors of

California, Inc. v. California State Council of

Carpenters, the Supreme Court held that Congress

did not abrogate prudential standing principles when

it enacted the Clayton Act, despite statutory

language allowing “[alny person who shall be injured

in his business or property” to bring suit under that

act. 459 U.S. 519, 535 & n.31, 103 S.Ct. 897, 907 &

n.31, 74 L.Ed.2d 723 (1983). And as noted by the

courts in Conte Bros. and Procter & Gamble,

language contained in § 45 of the Lanham Act “makes

clear that the focus of the [Lanham Act] is on anti-

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competitive conduct in a commercia! context,”! so

that conferring standing to the full extent implied by

the plain language of § 43(a) would give standing to

parties that have not had their competitive or

commercial interests affected by the defendant’s

conduct. Conte Bros., 165 F.3d at 229; Procter &

Gamble, 242 F.3d at 561. Rather, “{t]he

congressionally-stated purpose of the Lanham Act”

evinces a congressional “intent to limit standing to a

narrow class of potential plaintiffs possessing

interests the protection of which furthers” that

congressionally stated purpose. Conte Bros., 165

F.3d at 229.

Accordingly, in light of the text of § 43(a) and

the purpose of the Lanham Act as expressed in § 45,

we join the Third and the Fifth Circuits and hold that

Congress did not intend to abrogate prudential

standing limitations when it enacted the Lanham

Act.

' Section 45 provides in pertinent part:

The intent of this chapter is to regulate commerce

within the control of Congress by making actionable the

deceptive and misleading use of marks in_ such

commerce; to protect registered marks used in such

commerce from interference by State, or territorial

legislation; to protect persons engaged in such commerce

against unfair competition, to prevent fraud and

deception in such commerce by the use of reproductions,

copies, counterfeits, or colorable imitations of registered

marks; and to provide rights and remedies stipulated by

treaties and conventions respecting trademarks, trade

names, and unfair competition entered into between the

United States and foreign nations.

15 U.S.C. § 1127 (emphasis added).

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B. The Appropriate Test for Prudential

Standing Under § 43(a)

Phoenix argues that the district court applied

the wrong test to determine whether Phoenix had

prudential standing to bring its false advertising

claim against McDonald’s. According to Phoenix, the

district court erred in applying the five-factor test

articulated by the Third Circuit in Conte Bros., and

instead, the court should have applied the

“categorical approach” that, according to Phoenix,

“controls in most” of the circuit courts of appeals.

This court has not addressed the appropriate

test for determining whether a plaintiff has

prudential standing to bring a false advertising claim

under § 43(a) of the Lanham Act. After surveying the

caselaw from other circuits and examining the

parties’ arguments, we join the Third and Fifth

Circuits and adopt the test for prudential standing

articulated in Conte Bros.2 We therefore hold that to

determine whether a party has prudential standing

to bring a false advertising claim under § 43(a) of the

Lanham Act, a court should consider and weigh the

following factors:

(1) The nature of the plaintiff's alleged

injury: Is the injury of a type that

Congress sought to redress in providing

a private remedy for violations of the

? To date, the Third and Fifth Circuits are the only

circuits to have adopted the test set forth in Conte Bros.

Automotive, Inc. v. Quaker State-Slick 50, Inc., 165 F.3d 221,

233 (3d Cir. 1998), as the standard for determining whether a

plaintiff has prudential standing under § 43(a) of the Lanham

Act. See Am. Ass'n of Orthodontists v. Yellow Book USA, Inc.,

434 F.3d 1100, 1104 (8th Cir. 2006).

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[Lanham Act]?

(2) The directness or indirectness of the

asserted injury.

(3) The proximity or remoteness of the

party to the alleged injurious conduct.

(4) The speculativeness of the damages

claim.

(5) The risk of duplicative damages or

complexity in apportioning damages.

Conte Bros., 165 F.3d at 233 (nternal quotation

marks and citations omitted);3 Procter & Gamble, 242

F.3d at 562 (adopting the Conte Bros. test for

determining prudential standing under the Lanham

Act). We believe that this test “provides appropriate

flexibility in application to address factually

disparate scenarios that may arise in the future,

while at the same time supplying a principled means

for addressing standing under... § 43(a).” Conte

Bros., 165 F.3d at 236. Indeed, “two prominent

commentaries” have endorsed this standard. Procter

& Gamble, 242 F.3d at 562 n.51 (citing 4 McCarthy,

McCarthy on Trademarks and Unfair Competition

§ 27:32 n.1 (4th ed. 1996) (“In the author’s opinion,

some limit on the § 43(a) standing of persons remote

from the directly impacted party should be applied by

analogy to antitrust law, such as use of the criteria

listed in Associated General Contractors... .”);

Restatement (Third) of Unfair Competition § 3 cmt.f

(1995) (“In determining whether an asserted injury is

sufficiently direct to justify the imposition of liability,

the Supreme Court’s analysis of similar issues under

3 In announcing this standard, the Third Circuit adopted

the test for standing under the Sherman Act articulated by the

Supreme Court in Associated General Contractors of California,

Inc. v. California State Council of Carpenters, 459 U.S. 519, 103

S.Ct. 897, 74 L.Ed.2d 723 (1983). Conte Bros., 165 F.3d at 233.

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federal antitrust law may offer a useful analogy.”)).

And under this standard, “standing under the

Lanham Act does not turn on the label placed on the

relationship between the parties.” Conte Bros., 165

F.3d at 235.

Phoenix argues that this court should adopt

the so-called “categorical approach” that is applied in

the majority of the circuits, as under that approach,

“actual” or “direct” competition is the “exclusive

requirement” for determining prudential standing.

To that end, Phoenix argues that the Conte Bros. test

was formulated in order to extend prudential

standing under the Lanham Act to parties who are

not in “actual” or “direct” competition. Thus,

according to Phoenix, the Conte Bros. factors

“inevitably collapse” into the categorical approach

when applied to a “direct competitor” alleging a

“competitive injury,” and therefore, direct competitors

“invariably satisfy” the Conte Bros. requirements.

We address each argument in turn.

Of the circuits that have not adopted the Conte

Bros. test, the Seventh, Ninth, and Tenth Circuits

have come the closest to “categorically” holding that

the plaintiff must be in “actual” or “direct”

competition with the defendant and assert a

“competitive injury to establish prudential standing

under § 43(a)."4 See, e.g., Jack Russell Terrier

* Contrary to Phoenix’s contention, it appears that the

Fourth Circuit has not adopted the so-called categorical

approach followed in the Seventh, Ninth, and Tenth Circuits. In

Made in the USA Foundation v. Phillips Foods, Inc., the Fourth

Circuit stated that “in an earlier case involving commercial

parties, we noted in passing that the Lanham Act is ‘a private

remedy [for al commercial plaintiff who meets the burden of

proving that its commercial interests have been harmed by a

competitor's false advertising.” 365 F.3d 278, 281 (4th Cir.

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Network of N. Ca. v. Am. Kennel Club, Inc., 407 F.3d

1027, 1037 (9th Cir. 2005) (holding that to establish

“standing pursuant to the ‘false advertising’ prong of

§ 43(a) of the Lanham Act, a plaintiff must show: (1)

a commercial injury based upon a misrepresentation

about a product; and (2) that the injury is

‘competitive, or harmful to the plaintiffs ability to

compete with the defendant” (citation omitted));

Hutchinson v. Pfeil, 211 F.3d 515, 520 (10th Cir.

2000) (holding that the plaintiff lacked standing

because his hopes of eventually obtaining a product

to compete with the defendant’s were too remote, and

his inability to compete with the defendant was not a

function of the defendant’s alleged misconduct);

Johnny Blastoff, Inc. v. L.A. Rams Football Co., 188

F.3d 427, 438 (7th Cir. 1999) (holding that “a party

2004) (quoting Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1139

(4th Cir. 1993)) (emphasis added). And after examining

opinions from the First, Second, Third, Seventh, and Tenth

Circuits, the Fourth Circuit acknowledged that “there might be

some marginal differences in the circuits about what qualifies as

a commercial or competitive interest for standing purposes

under the Lanham Act” and determined that “the basic

approach of other circuits... requires the Lanham Act plaintiff

to be engaged in commercial activity.” Jd. at 280-81 (examining

Conte Bros., 165 F.3d at 229; Stanfield v. Osborne Indus., Inc.,

52 F.3d 867, 873 (10th Cir. 1995); Dovenmuehle v. Gilldorn

Mortgage Midwest Corp., 871 F.2d 697, 700 (7th Cir. 1989);

Berni v. Int'l Gourmet Rests. of Am., Inc., 838 F.2d 642, 648 (2d

Cir. 1988); Came/ Hair & Cashmere Inst. of Am., Inc. v.

Associated Dry Goods Corp., 799 F.2d 6, 11-12 (1st Cir. 1986)).

The court endorsed this “basic approach,” and as a result, it

concluded that a consumer does not have standing to sue for

false advertising under the Lanham Act. /d. at 281. Thus,

rather than adopt the categorical approach followed by the

Seventh, Ninth, and Tenth Circuits, the Fourth Circuit endorsed

the “basic approach” of requiring that the plaintiff be engaged in

commercial activity—an approach followed by all circuits that

have addressed the issue. /d.

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must demonstrate that it has a reasonable interest to

be protected against conduct violating the Actl,]” by

asserting “a discernable competitive injury” (internal

quotations omitted)); Stanfield v. Osborne Indus.,

Inc., 52 F.3d 867, 873 (10th Cir. 1995) (holding that

the plaintiff “must be a competitor of the defendant

and allege a competitive injury”); L.S. Heath & Son,

Inc. v. AT&T Info. Sys., Inc., 9 F.3d 561, 575 (7th Cir.

1993) (holding that “the plaintiff must assert a

discernible competitive injury”); Waits v. Frito-Lay,

Inc., 978 F.2d 1093, 1109 (9th Cir. 1992) (same).

In contrast to the Seventh, Ninth, and Tenth

Circuits, the First and Second Circuits have applied a

less categorical approach to determine standing,

wherein the dispositive issue is not the degree of

“competition,” but whether the plaintiff has a

“reasonable interest” to be protected against the type

of harm that the Lanham Act is intended to prevent.

See, e.g., Ortho Pharm. Corp. v. Cosprophar, Inc., 32

F.3d 690, 694 (2d Cir. 1994); Camel Hair & Cashmere

Inst., Inc. v. Associated Dry Goods Corp., 799 F.2d 6,

11°(1st Cir. 1986). In Camel Hair, a trade group of

cashmere garment producers filed a Lanham Act suit

alleging that a coat manufacturer had

misrepresented the cashmere content of one of its

products. 799 F.2d at 6-8. In discussing the issue of

standing, the First Circuit said: “the plaintiff [must

have] a reasonable interest in being protected

[against false advertising]. ... [I]t is [not enough] for

the plaintiff merely to establish a falsehood in the

defendant’s advertising or marketing; the plaintiff

must also show a link or ‘nexus’ between itself and

the alleged falsehood.” Jd. at 11-12 (emphasis added).

Concluding that the trade group had standing, the

First Circuit stated that “lalthough] mone of the

[group’s] members compete with the

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defendant...their position as manufacturers and

vendors of fabric and clothing containing cashmere

gives them a strong interest in preserving cashmere’s

reputation as a high quality fibre.” Jd. at 12

(emphasis added).

In the Second Circuit, a plaintiff bringing a

false advertising claim under the Lanham Act “must

demonstrate both (1) a reasonable interest to be

protected against the advertiser’s false or misleading

claims, and (2) a reasonable basis for believing that

this interest is likely to be damaged by the false or

misleading advertising.” /7C Ltd. v. Punchgini, Inc.,

482 F.3d 135, 169 (2d Cir. 2007) (internal quotation

marks omitted); accord Societe Des Hotels Meridien

v. LaSalle Hotel Operating P’ship, L.P., 380 F.3d 126,

130 (2d Cir. 2004); Havana Club Holding, S.A. v.

Galleon S.A., 203 F.3d 116, 130 (2d Cir. 2000); PDK

Labs, Inc. v. Friedlander, 103 F.3d 1105, 1111 (2d

Cir. 1997). “The reasonable interest prong of this test

includes commercial interests, direct pecuniary

interests, and even a future potential for a

commercial or competitive injuryl,]” while “the

reasonable basis prong requires the plaintiff to show

both likely injury and a causal nexus to the false

advertising.” JTC, 482 F.3d at 169-70 (internal

quotation marks omitted) (emphasis added). And

under the Second Circuit’s approach, a plaintiff

asserting a false advertising claim under § 43{a) need

not be a “competitor.” See PDK Labs, 103 F.3d at

1111; Ortho, 32 F.3d at 694; Berni v. Int’) Gourmet

Rests. of Am., Inc., 838 F.2d 642, 648 (2d Cir. 1988).

Instead, “where the plaintiffs products are not

obviously in competition with [the] defendant’s

products,” the “plaintiff must make a _ more

substantial showing of injury and causation.” PDK

Labs, 103 F.3d at 1111 (quotation marks omitted).

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Thus, contrary to Phoenix’s assertions, the

majority of the circuits do not hold “categorically”

that actual or direct competition is the exclusive

requirement for standing to bring a false advertising

claim under the Lanham Act.

We also disagree with Phoenix’s assertion that

the Third Circuit adopted the Conte Bros. test to

“extend prudential standing” to parties who are not

in “direct” or “actual” competition. In determining

the appropriate test for prudential standing under

§ 43(a), the Conte Bros. court first noted that the

Third Circuit’s previous cases addressing § 43(a)’s

standing requirements “defined the _ dispositive

question of a party’s prudential standing as whether

the party has a reasonable interest to be protected

against false advertising.” Conte Bros., 165 F.3d at

230 (internal quotation marks omitted) (emphasis

added). Although the court had “never precisely

defined the critical term ‘reasonable interest,” it had

“carried forward this prudential ‘reasonable interest’

* Phoenix further contends that the district court

erroneously framed the Conte Bros. test and the “categorical

approach” as “opposite sides.of a circuit split coin.” Although we

agree that the Conte Bros. test and the categorical approach are

not necessarily on opposite sides of a circuit split, we

nonetheless conclude that there is tension between the two

approaches with regards to the degree of actual cumpetition

required between the plaintiff and the defendant. See, e.g., Am.

Ass'n of Orthodontists, 434 F.3d at 1103-04 (recognizing

differences between circuits that “have held, categorically, that

false advertising claims not involving misuse of a trademark are

actionable only when brought by competitors of the

wrongdoer[,]” and those circuits that “have adopted a less

categorical multi-factor test...that focuses judicial

enforcement of the Lanham Act on the protection of commercial

interests and the prevention of competitive harm” (internal

quotation marks omitted)).

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requirement and hald] grappled with defining the

term with greater precision.” Jd. at 230-31. In

adopting the five-factor test discussed above, the

court expressly declined to adopt standards

conferring standing only on “direct competitors or

their surrogates,” as such standards were “in tension”

with language from a previous Third Circuit opinion

which implied that parties “not in direct competition”

may nonetheless “have standing to sue if they have a

reasonable interest to be protected against false

advertising.” Jd. at 232 (citing Serbin v. Ziebart Int’

Corp., 11 F.3d 1163, 1176-77 (3d Cir. 1993)) (internal

quotation marks omitted). The court also cited

earlier cases from the First and Second Circuits that

recognized standing for Lanham Act plaintiffs who

were not in direct competition with the defendant.

Id. at 231-32 (citing PPX Enters., Inc. v.

Audiofidelity, Inc., 746 F.2d 120 (2d Cir. 1984)

(holding that the owner of royalty streams from a

music recording had standing to sue a distributor of

falsely labeled music recordings); Camel Hair, 799

F.2d at 11 (holding that a trade association of

manufacturers of cashmere fibers and fabrics, but not

of finished coats, had standing to sue retailers of

coats falsely labeled as -containing more cashmere

than they had)). Thus, even before the Conte Bros.

decision, the Third Circuit had implied, and the First

and Second Circuits had held expressly, that parties

who are not in “direct” or “actual” competition may

nonetheless have prudential standing to bring false

advertising claims under the Lanham Act.

Finally, we disagree with Phoenix’s contention

that “direct competitors” alleging a “competitive”

injury “invariably satisfy’ the Conte _ Bros.

requirements. Rather than blindly accept a plaintiffs

allegation that it is a “competitor” that has suffered a

20a

“competitive injury,” the Conte Bros. test is designed

to determine whether the injury alleged is the type of

injury that the Lanham Act was designed to

redress—harm to the plaintiffs “ability to compete”

in the marketplace and erosion of the plaintiff's “good

will and reputation” that has been directly and

proximately caused by the defendant’s false

advertising. Jd. at 234-36. Moreover, at least one

federal court (in addition to the district court below)

has applied the Conte Bros. test where the plaintiff

and defendant were “direct competitors” and held

that the plaintiff lacked prudential standing. See,

e.g., KIS, S.A. v. Foto Fantasy, Inc., 240 F. Supp. 2d

608, 610-11, 616 (N.D. Tex. 2002) (applying the Conte

Bros. test and holding that the plaintiff, a

manufacturer and operator of photo booths, lacked

prudential standing to bring a false advertising claim

against the defendant, also a manufacturer and

operator of photo booths, even though the plaintiff

and defendant were direct competitors in the photo

booth industry). And even accepting Phoenix’s

argument, as stated above, we conclude that the

Conte Bros. test “provides appropriate flexibility in

application to address factually disparate scenarios

that may arise in the future, while at the same time

supplying a principled means for addressing standing

under” § 43(a) of the Lanham Act. Conte Bros., 165

F.3d at 236.

In summary, we hold that to determine

whether a plaintiff has prudential standing to bring a

false advertising claim under § 43(a) of the Lanham

Act, a court must consider and weigh the five factors

articulated in the Conte Bros. opinion.

2la

C. Applying the Conte Bros. Test for

Prudential Standing

Phoenix argues that it satisfied the

requirements of prudential standing under the Conte

Bros. test. After examining and weighing the Conte

Bros. factors, we conclude otherwise.

1. Type of Injury Alleged

The first factor directs us to determine

“whether the alleged injury is of a type Congress

sought to redress in providing a private remedy for

violations of the Lanham Act.” Procter & Gamble,

242 F.3d at 563. As the Conte Bros. court noted, the

focus of § 43(a) is on protecting “commercial interests

[that] have been harmed by a.competitor’s false

advertising, and in securling] to the business

community the advantages of reputation and good

will by preventing their diversion from those who

have created them to those who have not.” Conte

Bros., 165 F.3d at 234 (alterations in original)

(citation omitted).

In its complaint, Phoenix alleges that (1)

McDonald’s falsely advertised that customers who

purchased its products had a fair and equal chance to

win any of the prizes offered, including the high-

value prizes; (2) during the run of the games,

McDonald’s experienced an “unnatural spike” in its

sales while Burger King experienced a decrease in its

sales; and (3) Burger King franchisees incurred

counter-promotion costs in an effort te “lure back

customers who frequented McDonald’s while the

fraudulent games were running.” In our view, these

allegations amount to an assertion by Phoenix that

its “commercial interests” were “harmed by a

22a

competitor's false advertising,” and this is the type of

harm the Lanham Act was intended to redress. See

id. at 234.

McDonald’s argues that its “conduct was in no

way anti-competitive” because it “was the victim of a

criminal fraud scheme” perpetrated by a third party.

According to McDonald’s, “to the extent any of its

advertising was ‘false,’ it was false solely because of

the intervening criminal conduct of Jacobson and his

coconspirators.” We find this argument unavailing,

however, because Phoenix alleges that McDonald’s

“knowingly and deliberately continued to advertise”

that its customers had a “fair and equal chance” to

win high-value prizes even after learning that the

integrity of its promotional games had been

compromised. Moreover, “[slection 43(a) provides a

strict liability tort cause of action.” Vector Prods.,

Inc. v. Hartford Fire Ins. Co., 397 F.3d i316, 1319

(llth Cir. 2005) (“It is well-settled that no proof of

intent or willfulnmess is required to establish a

violation of Lanham Act §43(a) for false

advertising.”).

McDonald’s also contends that Phoenix’s

alleged injuries are not competitive in nature because

the challenged advertisements “did not tout the

products and services of McDonald’s or disparage the

products and services of Burger King.” We cannot

° Although the Conte Bros. court held that the “loss of sales”

suffered by the plaintiffs in that case did not detract from their

“ability to compete” and thus was not the type of injury the

Lanham Act was designed to redress, the court reached this

conclusion after determining that the plaintiff-retailers were not

at all in competition with the defendant-manufacturers. Conte

Bros., 165 F.3d at 234. Here, by contrast, Burger King is one of

McDonald’s direct competitors in the fast food industry.

23a

agree. Although the advertisements did not

disparage Burger King or tout some intrinsic quality

of McDonald’s goods and services, the advertisements

nonetheless asserted that customers who patronized

McDonald’s restaurants had an opportunity to win

prizes, including the high-value prizes that had been

stolen. Moreover, Phoenix alleges that the

promotional games were sometimes “physically

attached to McDonald’s products.”

McDonald’s further contends that because

Phoenix “has neither alleged nor suggested that its

reputation was adversely affected by McDonald’s

advertising,” this lack of “reputational injury”

counsels against prudential ‘standing. Although

McDonald’s is correct in asserting that Phoenix does

not allege that its reputation was harmed by

McDonald’s conduct, we cannot say that the lack of

alleged “reputational injury,” in and of itself, directs

us to conclude that Phoenix has failed to allege the

type of injury that the Lanham Act was intended to

redress. Again, the Lanham Act is not only designed

to protect against unfair erosion of a competitor’s

reputation, it is a/so designed to protect “commercial

interests [that] have been harmed by a competitor’s

false advertising,” Conte Bros., 165 F.3d at 234

(alteration in original), and, as stated above, Phoenix

alleges such harm. We therefore conclude that the

first factor weighs in favor of prudential standing.

2. Directness of the Asserted Injury

The second factor requires us to examine the

“directness” with which the defendant’s conduct

affected.the plaintiff. Phoenix alleges that by falsely

advertising that customers had a fair and equal

opportunity to win high-value prizes, McDonald’s

|

24a

lured customers to its restaurants and away from

Burger King restaurants. According to Phoenix, as a

direct result of these false advertisements, it lost

sales and incurred additional promotional expenses

in its attempts to lure back the customers it lost to

McDonald’s during the fraudulent promotion.

On one hand, the causal chain Phoenix alleges

is similar to that of the typical false advertising claim

in which a plaintiff alleges that it lost sales and/or

market share as a result of the defendant’s false or

misleading representations about some characteristic

of the defendant’s product or services. For example,

in Logan v. Burgers Ozark Country Cured Hams Inc.,

the Fifth Circuit concluded that the second Conte

Bros. factor counseled in favor of standing where the

plaintiff alleged that the defendant’s “literally false

advertising about its own goods influenced its

customers to buy its product instead of [the

plaintiffs] product.” 263 F.3d 447, 461 (5th Cir.

2001). In so concluding, the Logan court stated that

the plaintiff's ability to license its products “may have

been directly affected by |the defendant’s] false

advertising” about the defendant’s products. /d.

(emphasis added). And in Procter & Gamble, the

Fifth Circuit stated that the second factor weighs in

favor of standing in cases where “one competitor

directly injurles] another by making false statements

about its own goods and thus influencles] customers

to buy its product instead of the competitor's

product.” Logan, 263 F.3d at 460 (citing Procter &

Gamble, 242 F.3d at 563).

On the other hand, the causal chain Phoenix

alleges is more attenuated than that alleged in cases

like Logan. Phoenix essentially alleges that (1)

McDonald’s advertisements falsely represented that

25a

customers had a fair and equal chance to win one of

the “rare” high-value prizes if those customers

patronized McDonald’s restaurants and played its

games; (2) as a direct result of the misrepresentation

regarding the high-value prizes, McDonald’s lured

customers who would have eaten at Burger King (as

opposed to one of numerous other fast food

competitors), causing Burger King to lose sales; and

(3) but for this misrepresentation, these customers

would have eaten at Burger King, even though the

chances of winning one of the “rare” high-value prizes

would have been minute had there been no theft,

even though only “certain” high-value prizes were

stolen, and even though these customers still had a

fair and equal opportunity to win all of the other

prizes. Accepting Phoenix’s allegations as true, the

causal chain’ linking $McDonald’s __ alleged

misrepresentations about one aspect of its

promotional games to a decrease in Burger King’s

sales is tenuous, to say the least.

Taking care not to conflate the prudential

standing inquiry with the “materiality” element

Phoenix must establish to succeed on the merits of its

claim, see Johnson & Johnson Vision Care, Inc. v. 1-

800 Contacts, Inc., 299 F.3d 1242, 1250 (11th Cir.

2002) (“To succeed on a claim of false advertising, the

plaintiff must establish that the defendant's

deception is likely to influence the purchasing

decision.” (interna! guetation marks omitted)), we

conclude that the second factor counsels against

prudential standing.

26a

3. Proximity to the Allegedly Harmful

Conduct

The third factor requires us to examine the

proximity of the plaintiff to the allegedly harmful

conduct. In examining this factor, we must

determine whether there is an “identifiable class” of

persons “whose self-interest would normally motivate

them to vindicate the public interest” by bringing a

suit. Conte Bros., 165 F.3d at 234. “The existence of

such a class diminishes the justification for allowing

a more remote party...to perform the office of a

private attorney general.” Joint Stock Soc’y v. UDV

N. Am., Inc., 266 F.3d 164, 182 (3d Cir. 2001)

(internal quotation marks omitted).

Here, the district court held, and McDonald’s

asserts on appeal, that the consumers who were

denied a fair and equal opportunity to win the high-

value prizes as advertised constitute an “identifiable

class” of persons whose self-interest would normally

motivate them to sue McDonald’s regarding its false

advertising. But this can be said about any false

advertising claim, as the consumers who were

diverted from the plaintiffs product to the

defendant’s product in reliance on the defendant’s

allegedly false advertisements would always have a

natural self-interest in suing for fraud. As such, if we

accept the district court’s and McDonald’s reasoning,

this factor would never counsel in favor of prudential

standing. Moreover, consumers would not be able to

vindicate the public interest via the Lanham Act, as

“the several circuits that have dealt with the question

are uniform in their categorical denial of Lanham Act

standing to consumers.” Made in the USA Found. v.

Phillips Foods, Inc., 365 F.3d 278, 281 (4th Cir. 2004);

see also Conte Bros., 165 F.3d at 229 (reiterating

27a

precedent holding that consumers lack standing

under the Lanham Act and stating that a contrary

conclusion would “ignore the purpose of” the Act);

Barrus v. Sylvania, 55 F.3d 468, 470 (9th Cir. 1995)

(holding that consumers lack standing to bring false

advertising claims under the Lanham Act because

they cannot allege either a commercial or competitive

injury).

Furthermore, courts applying the Conte Bros.

test have generally considered whether other

commercial entities were the more appropriate

parties to vindicate the competitive harm wrought by

the defendant’s alleged misconduct. See, e.g., Joint

Stock Soc’y, 266 F.3d at 182 (stating that Russian

vodka manufacturers that exported vodka to the U.S.

were better suited to bring a false advertising claim

against the defendant and “were more proximate to

the claimed injury” than the plaintiff-manufacturer

that did not export its vodka to the U.S.); Conte

Bros., 165 F.3d at 235 (conciuding that motor-oil

manufacturers had a more concrete interest in

preserving the reputation of motor oil than the

plaintiffs as retailers of engine additives); but see

Procter & Gamble, 242 F.3d at 563-64 (stating that

although distributors “probably do not have standing

to sue under the Lanham Act” because the Act “does

not give consumers standing to suel,]” distributors

“are more immediate to the injury than is [plaintiff-

manufacturer]” and “could vindicate the public

interest ... by suing for fraud”). As such, consumers

“should be irrelevant to this analysis.” Ford v.

NYLCare Health Plans of Gulf Coast, Inc., 301 F.3d

329, 338 (5th Cir. 2002) (Benavides, J., concurring).

Again, Phoenix alleges that as a direct result of

McDonald’s false and misleading representations

28a

regarding the high-value prizes, McDonald’s lured

customers away from Phoenix and its affiliated

franchisees, which, in turn, lost sales and market

share. Accepting these allegations as true, we can

think of no “identifiable class” of persons that is more

proximate to the claimed injury than fast food

franchisees such as Phoenix and the putative class it

seeks to represent. As such, the third factor weighs

in favor of prudential standing.

4. Speculative Nature of the Alleged Damages

Under the fourth factor of the Conte Bros. test,

we examine the speculative nature of the plaintiffs

alleged damages. According to Phoenix, its damages

are not “speculative” because it would be “relatively

straightforward” to calculate its damages as “an

appropriate share of all profits associated with sales

generated by the fixed promotional games” based on

market share. We disagree.

As the district court noted, only “certain” high-

value prizes were stolen, and customers still had a

fair and equal opportunity to win one of the relatively

numerous low- and mid-value prizes McDonald’s

offered, because those prizes were unaffected by the

theft. Moreover, the fast food market consists of

many competitors, only two of which are McDonald’s

and Burger King. In our view, it requires too much

speculation to conclude that an _ ascertainable

percentage of both the increase in McDonald’s sales

and the concomitant decrease in Burger King’s sales

during the several-year run of the games is directly

attributable to McDonald’s alleged

misrepresentations about the chances of winning

high-value prizes.

29a

Phoenix also argues that at the pleading stage,

the focus should be on what the complaint alleges,

not on whether Phoenix may be able to prove the

exact number of customers lured to McDonald’s,

because this is a matter for discovery and expert

testimony. Although “general factual allegations of

injury resulting from the defendant’s conduct may

suffice” to support standing “[aJt the pleading stage,”

Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112

S.Ct. 2130, 2137, 119 L.Ed.2d 351 (1992) (emphasis

added), to “presume” that Phoenix’s allegations

“embrace those specific facts that are necessary to

support” its claim to an appropriate share of

McDonald’s profits from the compromised games

requires too much conjecture. See id. Even accepting

Phoenix’s allegations as true, the speculative nature

of the damages it allegedly incurred as a result of

McDonald’s representations regarding the high-value

prizes is inescapable.

Phoenix also contends that disgorgement of the

profits McDonald’s made during the “fixed” promotion

would be an appropriate remedy “if the district

court’s premature fears [regarding the incalculable

nature of Phoenix’s damages] were substantiated.”

Disgorgement of “wrongful” profits “initially

developed as a remedy to provide a plaintiff relief in

equity, to serve as a proxy for damages, or to deter

the wrongdoer from continuing his violations” and “is

most appropriate if damages are otherwise nominal.”

BASF Corp. v. Old World Trading Co., 41 F.3d 1081,

1095-96 (7th Cir. 1994). But as the Third Circuit

stated in Joint Stock Soc’y, “lilf a request for relief

that may be sought by any party sufficed under the

fourth factor of the Conte Bros. test, that factor would

be essentially meaningless, and we refuse to

undermine the fourth factor in this way.” Joint Stock

30a

Soc’y, 266 F.3d at 185. “The aim of [prudential

standing] is to determine whether the plaintiff is ‘a

proper party to invoke judicial resolution of the

dispute and the exercise of the court’s remedial

powers.” Conte Bros.,. 165 F.3d at 225 (quoting

Bender v. Williamsport Area Sch. Dist., 475 U.S. 534,

546 n.8, 106 S.Ct. 1326, 1334 n.8, 89 L.Ed.2d 501

(1986)). Accordingly, Phoenix may not bolster its

“case for prudential standing by relying on forms of

monetary relief that [it] would receive as a vicarious

avenger of the general public’s right to be protected

against... false advertisements.” Joint Stock Soc’y,

266 F.3d at 185 (internal quotation marks omitted).

We thus conclude that the fourth factor weighs

against prudential standing.

5. Risk of Duplicative Damages

The fifth and final factor under the Conte Bros.

test requires us to assess the risk of duplicative

damages or the complexity of apportioning damages.

The district court concluded that this factor weighs

against standing. We agree.

If we were to hold that Phoenix has prudential

standing to bring the instant claim, then every fast

food competitor of McDonald’s asserting that its sales

had fallen by any amount during the relevant time

period would a/so have prudential standing to bring

such a claim. And if every fast food competitor had

standing to bring such a claim, regardless of the

amount in controversy, regardless of the amount of

lost sales or market share directly attributable to the

falsity of the advertisement, and regardless of the

impact on the competitor’s goodwill or reputation (as

the advertisements made no mention of any

3la

competitor), the impact on the federal courts would

be substantial. Furthermore, apportioning damages

among these competitors would be a highly complex

endeavor.

Phoenix argues that courts applying the Conte

Bros. test have assessed the risk of duplicative

damages either by examining “the plaintiff's position

in the distribution chain relative to the defendant” or

by examining “whether the injury is directly related

to the market” in which they compete. But courts

applying the Conte Bros. test also have assessed the

risk of duplicative damages by examining the number

of potential claimants in the same position in the

distribution chain as the plaintiff and/or in the same

market as the plaintiff. For example, the Third

Circuit in Joint Stock Soc’y assessed the fifth factor

by noting that if the plaintiffs were granted

prudential standing, false advertising claims could be

brought against the defendant by, inter alia, all

vodka manufacturers in the U.S. market and all

vodka manufacturers who, like the plaintiffs, had not

entered the U.S. market but had taken minimal

preparatory steps for entry. 266 F.3d at 184-85.

Thus, the Joint Stock Soc’y court considered both the

number of potential claimants occupying the same

position in the distribution chain as the plaintiffs

(manufacturers) and the number of potential

claimants in the same market as the plaintiffs

(manufacturers who had not entered the US.

market) to conclude that the fifth factor weighed

against prudential standing. In Logan, the Fifth

Circuit determined that the fifth factor weighed in

favor of prudential standing because “Logan

appearled] to be the only plaintiff who could bring a

Lanham Act false advertising claim against [the

defendant] based on” the challenged advertisements.

32a

263 F.3d at 461. And in Procter & Gamble, the Fifth

Circuit concluded that the fifth factor counseled

against standing for Procter & Gamble in part

because “every competitor in the market could sue”

the defendant if Procter & Gamble were allowed

standing. 242 F.3d at 564 (emphasis added).

Accordingly, we conclude that the fifth factor

weighs against standing.

6. Weighing The Totality of the Factors

To summarize, the first and third Conte Bros.

factors weigh in favor of prudential standing, while

the second, fourth, and fifth factors weigh against

prudential standing. Admittedly it is a _ close

question, but we conclude that on balance, Phoenix

does not have prudential standing to bring its claim

against McDonald’s. Although Phoenix and the class

it seeks to represent are McDonald’s “direct

competitors,” Phoenix has alleged a competitive harm

to their commercial interests, and there is no

identifiable class of persons that is more proximate to

the claimed injury, because of the attenuated link

between the alleged injury and McDonald’s alleged

misrepresentations, the speculative nature of the

claimed damages, the potential complexity in

apportioning damages, and the significant risk of

duplicative damages, we hold that Phoenix does not

have prudential standing to bring a false advertising

claim under the Lanham Act against McDonald’s.

In so holding, we say nothing about the

outcome of this analysis if, for example, the facts

were such that McDonald's had falsely advertised the

odds of winning all of its prizes (low-, mid-, and high-

value), or if McDonald’s were only giving away a

33a

single prize and falsely represented the odds of

winning, as these hkypotheticals present factual

scenarios mat~: ally different from the facts of this

case. Indeed, as stated above, a salient virtue of the

Conte Bros. test is that it provides a flexible yet

principled means of determining the existence of

prudential standing for disparate factual scenarios,

thereby allowing courts to foreclose standing on one

set of facts while recognizing standing when

presented with a slightly (but materially) different

set of facts.

Ill. CONCLUSION

For the foregoing reasons, we AFFIRM.

34a

APPENDIX B

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

PHOENIX OF BROWARD, INC.

on behalf of itself and similarly

situated Burger King Franchisees,

Plaintiff,

CIVIL ACTION

Vv.

NO. 1:06-CV-394-CAP

MCDONALD'S CORPORATION,

Defendant.

ORDER

This matter is before the court on the

defendant’s motion to dismiss [Doc. No. 13].

Factual Background

The plaintiff, Phoenix of Broward, Inc.

(“Phoenix”), is a licensed Burger King franchisee

operating a Burger King fast food restaurant in Ft.

Lauderdale, Florida. Although not a party to this

lawsuit, Burger King Corporation owns, operates,

and framehises Burger King fast food restaurants

throughewt the world. There are approximately

11,000 Berger King restaurants worldwide.

Like Burger King, the defendant, McDonald’s

35a

, 9

Corporation (“McDonald’s”), owns, operates, and

franchises fast food restaurants throughout the

world. There are approximately 30,000 McDonald’s

restaurants in 119 countries, of which approximately

13,000 are located in the United States.

McDonald’s and Burger King are competitors

in the fast food restaurant industry. Both companies

use a variety of promotional strategies to attract

customers, generate sales, and engender customer

loyalty. For example, beginning in 1995 and

continuing until 2001, McDonald’s ran games, such

as the “Monopoly Game at McDonald’s,” “Hatch,

Match and Win,” and “Who Wants to be a Millionaire

Game.” Each of these promotional games had low-

value, mid-value, and high-value prizes. Low-value

prizes included food items and low dollar cash prices.

High-value prizes included vehicles and cash of up to

$1 million. Generally, there were two opportunities

to win the $1 million grand prize: (1) by obtaining the

$1 million instant winner game piece, or (2) by

collecting certain game pieces.

McDonald’s_ extensively advertised and

promoted each of the games it offered to the public.

As part of its advertisements, McDonald’s allegedly

represented that all customers had a fair and equal

opportunity to win all of the offered prizes, including

the high-value prizes. McDonald’s advertisements

also listed the odds of winning specific prizes.

According to Phoenix’s complaint, because

customers desired the opportunity to win the

promoted prizes, especially the high-value prizes,

McDonald’s promotional games’- produced a

substantial amount of revenue over and above the

normal revenue stream.

36a

In approximately April 2000, the Federal

Bureau of Investigation (“FBI”) began investigating

McDonald’s_ promotional games. According to

Phoenix, at some time before or while the games were

underway, the FBI informed McDonald’s that there

were problems with the random distribution of

McDonald’s game pieces. Despite this alleged

knowledge, McDonald’s continued to advertise and

promote its games as if all customers had an equal

opportunity to win the high-value prizes.

In 2001, the United States Department of

Justice and the FBI announced that since at least

1995, certain of McDonald’s promotional games had

been compromised by a criminal ring led by an

individual employed by Simon Marketing, Inc.

(“Simon”), th’ company McDonald’s engaged to

operate its promotional games. Specifically, between

at least 1995 and August 2001, Simon’s Director of

Security, Jerome Jacobson, diverted at least $20

million in high-value prizes from McDonald’s games

by embezzling game pieces and distributing them to a

network of “winners.” When describing Jacobson’s

crime, the Attorney General of the United States

stated, “[t]his fraud scheme denied McDonald’s

customers a fair and equal chance of winning.”

On or about April 5, 2002, Jacobson pled guilty

to charges of conspiracy and mail fraud.

Approximately 45 other individuals also entered

guilty pleas in connection with the conspiracy.

Upon disclosure by McDonald’s to the public

that certain of its promotions had been fixed,

McDonald’s created an independent task force to

review all of its promotional procedures. McDonald’s

37a

then introduced additional security procedures to

ensure the integrity of future promotional games.

The disclosure of the fraud scheme also opened

the floodgates to a wide variety of civil litigation

against McDonald’s. Consumers filed several class-

action lawsuits against McDonald’s alleging

consumer fraud, negligence, and unjust enrichment.

On April 19, 2002, McDonald’s settled these lawsuits

by, among other things, agreeing to implement a $15

million instant giveaway, which provided the public

with the opportunity to win 15 $1 million prizes.

The consumer lawsuits, however, did not end

McDonald’s woes. On February 22, 2006, Phoenix

filed this action against McDonald’s on behalf of itself

and all similarly situated Burger King franchisees.

The proposed class includes over 1,100 Burger King

franchisees. The only claim for relief alleged by

Phoenix is a false advertising claim brought pursuant

to § 43(a) of the Lanham Act.

Section 43(a) of the Lanham Act creates a “civil

remedy for entities injured by their competitor’s false

or misleading advertising.” Tire Kingdom, Inc. v.

Morgan Tire & Auto, Inc., 915 F. Supp. 360, 364

(M.D. Fla. 1996). The pertinent portion of the statute

attributes liability to any person or entity who uses in

commerce any false or misleading description of fact

or false and misleading representation of fact which,

in “commercial advertising or promotion,

misrepresents the nature, characteristics, qualities or

geographic origin of his or her or another person’s

goods, services or commercial activities ... .” 15

U.S.C. § 1125(a)(1)(B). To succeed on its false

advertising claim, Phoenix has the burden of showing

that: (1) McDonald’s advertisements are false or

38a

misleading; (2) the advertisements deceived, or had

the capacity to deceive, consumers; (3) the deception

had a material effect on purchasing decisions; (4) the

misrepresented advertisements affect interstate

commerce; and (5) Phoenix has been or is likely to be

injured as a result of the false advertising. Johnson

& Johnson Vision Care, Inc. v. 1-800 Contacts, Inc.,

299 F.3d 1242, 1247 (11th Cir. 2002).

In this case, Phoenix alleges that McDonald’s

advertisements stating that each player had a fair

and equal chance to win the high-value prizes in the

rigged games were false. In reality, many of the

high-value prizes had been stolen by Jacobson’s

criminal ring. Phoenix claims that such advertising

unlawfully diverted sales away from Burger King

restaurants to McDonald’s restaurants. Phoenix also

alleges that McDonald’s conduct was “intentional

and/or sufficiently reckless” enough to _ subject

McDonald’s to treble damages.! For instance,

Phoenix claims that McDonald’s “knowingly and

deliberately” continued to advertise that its games

were fair after learning that the games were

compromised.

As recompense for the “diversion of their

customers,” Phoenix asks the court to: (1) order

McDonald’s to disgorge an appropriate share of

McDonald’s profits associated with sales generated by

the fixed promotional games, and (2) award the class

their actual damages, treble damages, pre-judgment

and post-judgment interest, and costs and expenses.

' Although Phoenix claims that McDonald’s conduct was

intentional or reckless, nowhere in the complaint does Phoenix

allege that McDonald’s was involved in Jacobson’s criminal

plan, nor does Phoenix allege that McDonald’s knew Jacobson

was going to steal game pieces before he did.

39a

Notably, Phoenix does not seek an injunction,

presumably because the criminal activity causing the

falsity of McDonald’s advertisements ceased after the

FBI and the Department of Justice concluded their

investigation and Jacobson pled guilty.

On April 17, 2006, McDonald’s filed the

present motion to dismiss. McDonald’s advances

three arguments in support of its motion to dismiss.

First, McDonald’s argues that Phoenix lacks

prudential standing to bring this lawsuit. Second,

McDonald’s asks the court to rule that the criminal

conduct of Jacobson and his conspirators is an

intervening cause that severs any possible liability on

the part of McDonald’s. Third, McDonald’s claims

that Phoenix’s complaint should be dismissed because

Phoenix failed to plead its Lanham Act claim with

the specificity required by Federal Rule of Civil

Procedure 9(b).

Legal Analysis

A. Standard of Review and Novelty of Phoenix's

Claim

When considering a motion to dismiss, the

court must accept the facts pleaded as true and

construe them in a light favorable to the non-movant.

See Covad Communications Corp. v. BellSouth Corp.,

299 F.3d 1272, 1279 (11th Cir. 2002).

Before reaching McDonald’s _ standing

arguments, the court must address the parties’ initial

disagreement. The parties spend much of their briefs

arguing about whether Phoenix’s theory of liability is

novel. For instance, McDonald’s argues that “never

before has a company brought a Lanham Act claim

40a

against a competitor whose advertising allegedly

became ‘false’ or ‘misleading’ solely because of the

felonious conduct of third parties.” In response,

Phoenix cites to BASF Corp. v. Old World Trading

Co., 41 F.3d 1081 (7th Cir. 1994) and Lubrizol Corp.

v. Exxon Corp., Civil Action No. 91-CV-1472 (N.D.

Ohio) as examples of just such a complaint.

After reviewing the cases cited by the parties,

the court concludes that both parties are partially

correct. Phoenix is correct in the sense that

companies have brought Lanham Act claims against

competitors who argued that they acted in good faith

when they generated the advertisement at issue.

See, e.g., Parkway Baking Co. v. Frethofer Baking

Co., 255 F.2d 641, 648 (3d Cir. 1958) (concluding that

the fact that the name of a licensee’s subsidiary

appeared on a bread wrapper due to a mistake caused

either by a third-party printer or the defendant was

not a defense to a § 43(a) false designation of origin

claim because there is no requirement that the

falsification occur willl]fully or with the intent to

deceive); American Rockwool, Inc. v. Owens-Corning

Fiberglass Corp., 640 F. Supp. 1411, 1449 (E.D.N.C.

1986) (“Plaintiffs contention that because it relied on

a certified laboratory’s test results in making its label

representations, these representations cannot be

false under the Lanham Act, is simply without merit .

This evidence could support a finding that the

plaintiff reasonably should have known that its bag

labels were false; again, there is no requirement

under the Lanham Act of proof of specific knowledge

of the falsity of the representation made.”), For

example, in BASF, 41 F.3d at 1081, Old World

Trading Company advertised that its antifreeze met

certain industry specifications. Old World did not,

however, conduct its own testing. Instead, it

4la

contracted out its antifreeze blending and testing to a

third party, Dearborn Chemical Company. BASF

brought suit against Old World, claiming that Old

World never actually tested its antifreeze to

determine whether it met the specifications. Old

World responded by _ stating that Dearborn’s

representatives assured Old World that the

antifreeze formula met the specifications. Despite

Old World’s claims of good faith, the Seventh Circuit

affirmed the district court’s holding that Old World

was liable to BASF for false advertising.

The BASF case is consistent with the well-

settled concept that no proof of intent or willfulness is

required to establish a false advertising claim

pursuant to § 43(a) of the Lanham Act. See Vector

Products, Inc. v. Hartford Fire Insurance Co., 397

F.3d 1316, 1319 (11th Cir. 2005); see also 1A Louis

Altman, CALLMAN ON UNFAIR COMPETITION,

TRADEMARKS AND MONOPOLIES § 5:28 (4th ed. 2006)

(“As a general rule, [ ] courts do not inquire into the

good or bad faith of the advertiser, or the purpose of

the advertisement, in passing upon its truth or

falsity. The deceptive or misleading quality of the

advertisement is not vitiated by the advertiser’s good

faith and, accordingly, intent to deceive is not an

element of the violation. An innocent state of mind

does not diminish the false advertiser’s unfair

advantage over competitors.”); Lillian R. BeVier,

Competitor Suits for False Advertising Under Section

43(a) of the Lanham Act: A Puzzle in the Law of

Deception, 78 Va. L. Rev. 40-41 (1992) (“Under

current interpretations of section 43(a), advertisers

are strictly hable both for an express or implied

claim’s falsity and for the fact that it was made.

Thus, the advertiser’s intent or her negligence is in

principle irrelevant in two quite different ways .

42a

[A]ls to the truth or falsity of the representation, it

does not matter whether the advertiser believed it to

be true, or even whether she had reasonable grounds

for such a belief ... .”). Rather, as the Eleventh

Circuit has held, § 43(a) creates a strict liability tort

cause of action. Vector, 397 F.3d at 1319. Thus, the

fact that McDonald’s acted in good faith when it

created the advertisements at issue is not a defense

to Phoenix’s action.

On the other hand, McDonald’s is correct in

that the court has been unable to locate any case

where a company brought a Lanham Act claim

against a competitor whose advertising became false

or misleading due to the fe/onious conduct of third

parties. Although arguably factually similar, BASF

does not deal with allegedly felonious conduct. The

Lubrizol case, moreover, does not have any published

decisions, and the case was settled before final

judgment.

B. Standing

Turning to the standing issue, McDonald’s first

substantive argument is that Phoenix lacks

prudential standing to bring its false advertising

claim. The requirement of standing is both a

constitutional limitation on federal court jurisdiction

and a prudential limitation on its exercise. Lujan v.

Defenders of Wildlife, 504 U.S. 555, 560, 112 S. Ct.

2130, 2136 (1992). The constitutional requirements

for standing emanate from Article III of the United

States Constitution, which states that federal courts

may only adjudicate cases or controversies. Allen v.

Wright, 468 U.S. 737, 750-51, 104 S. Ct. 3315, 3324

(1984). Constitutional standing requires only that a

plaintiff have suffered an injury in fact, that there be

43a

a causal connection between the injury and the

defendant’s conduct, and that the injury be

redressable by a favorable court decision. Lujan, 504

U.S. at 560, 112 S. Ct. at 2136.

In addition to the constitutional requirements,

federal courts adhere to a second standing component

that is based on prudential concerns. The goal of

prudential standing, like constitutional standing, is

to determine whether the plaintiff “is a proper party

to invoke judicial resolution of the dispute and the

exercise of the court’s remedial powers.” Sender v.

Williamsport Area School District, 475 U.S. 534, 546

n.8, 106 S. Ct. 1326, 1334 (1986).

The Eleventh Circuit has not addressed what

test the court should use in determining whether a

plaintiff has prudential standing to bring a Lanham

Act false advertising claim. Outside the Eleventh

Circuit, courts have developed two tests to determine

whether a plaintiff has prudential standing to assert

a false advertising claim under the Lanham Act. The

Seventh, Ninth, and Tenth Circuits appear to have

adopted a categorical approach, holding that to have

standing to assert a Lanham Act false advertising

claim, the plaintiff must be a competitor of the

defendant and allege a competitive injury. See

Stanfield v. Osborne Industries, Inc., 52 F.3d 867,

873 (10th Cir. 1995); L.S. Heath & Son, Inc. v. AT&T

Information Systems, Inc., 9 F.3d 561, 575 (7th Cir.

1993); Waits v. Frito-Lay, Inc., 978 F.2d 1093, 1110

(9th Cir. 1992). On the other hand, the Third and

Fifth Circuits have adopted a less categorical multi-

factor test, based on the Supreme Court’s test for

antitrust standing, that focuses judicial enforcement

of the Lanham Act on the protection of commercial

interests and the prevention of competitive harm.

44a

See Conte Bros. Automotive, Inc. v. Quaker State-

Slick 50, Inc., 165 F.3d 221, 233-35 (3d Cir. 1998);

_ Procter & Gamble Co. v. Amway Corp., 242 F.3d 539,

562-64 (5th Cir. 2001). Under the Conte Bros. test,

five factors are relevant to the prudential standing |

analysis: “(1) the nature of the plaintiffs alleged

injury, (2) the directness or indirectness of the

asserted injury, (3) the proximity or remoteness of

the party to the alleged injurious conduct, (4) the

speculativeness of the damages claim, and (5) the risk |

of duplicative damages or complexity in apportioning

damages.” /d. at 563.

After a survey of the caselaw in other circuits, the

court finds the test set forth in Conte Bros., 165 F.3d

at 233-385, persuasive. Cf Alphamed

Pharmaceuticals Corp. v. Arriva Pharmaceuticals,

Inc., 391 F. Supp.2d 1148, 1161 (S.D. Fla. 2005)

(using the Conte Bros. test to determine whether a

biopharmaceutical company had standing to sue an

alleged competitor for false advertising in violation of

the Lanham Act). The Conte Bros. test provides the

court with appropriate flexibility to address factually

disparate scenarios, while at the same time supplying

a principled means for addressing standing under the

false advertising prong of § 43(a). Thus, the court

will next address each factor of the Conte Bros. test

separately.

.. Whether Phoenix's Injury ts the Type of

Injury Congress Sought to Redress in the

Lanham Act

The first Conte Bros. factor directs the court to

decide whether the “alleged injury is of a type

Congress sought to redress in providing a private

remedy for violations of the Lanham Act.” Procter &

45a

Gamble, 242 F.3d at 563. The Lanham Act has two

aims: (1) vindicating commercial interests that have

been harmed by a competitor’s false advertising, and

(2) securing to the business community the

advantages of reputation and good will by preventing

their diversion from those who have created them to

those who have not. Conte Bros., 165 F.3d at 234.

While the court doubts that Congress sought to

redress advertising rendered false by the criminal

conduct of third parties,? the court concludes that this

factor weighs in favor of a finding of standing.

McDonald’s and Phoenix are unquestionably

competitors in the fast food industry. Also, as noted

above, the Eleventh Circuit has described false

advertising claims as “strict liability tort[s].” Vector,

397 F.3d at 1319. Accordingly, McDonald’s good faith

does not immunize it from liability, nor does it

transform Phoenix’s claim from the type of claim the

Lanham Act was designed to prevent.

Although this factor weighs in favor of

standing, the court concludes that it does so only

weakly. The advertisements at issue did not tout

McDonald’s products or services, nor did they

disparage the preducts or services of Burger King.

Instead, the advertisements focused on the odds of

winning certain high-value prizes in_ various

promotional games. There is no indication that

Burger King’s good will or reputation was harmed

? Phoenix does not allege that any employee of McDonald’s

was involved in Jacobson’s criminal ring. At most, Phoenix

claims that McDonald's continued to advertise that the rigged

games were fair after it received notice from the FBI that it was

investigating the possibility that the games were rigged.

Phoenix also suggests that McDonald’s security before learning

of Jacobson’s criminal activity was lax.

46a

directly or indirectly by the allegedly false

advertisements. As seems apparent from the spate of

consumer lawsuits against McDonald’s, if there has

been any harm caused by Jacobson’s criminal

conduct, it has been McDonald’s reputation that has

ultimately suffered, not Burger King’s.

In support of its argument that this factor is

practically dispositive of the standing issue, Phoenix

makes much of the fact that the advertisements at

issue were literally false. For instance, Phoenix

claims that a competitor who engages in literally

false advertising moves directly to a damages

defense. The court, however, fails to see how this

changes the court’s conclusion that this factor weighs

only weakly in favor of standing. First, it is not true

that a competitor whose advertisements are literally

false only has a damages defense. The Eleventh

Circuit has held that a plaintiff must still prove that

the advertising was material to customers. Johnson

& Johnson, 299 F.3d at 1250. Second, the alleged

literal falsity of McDonald’s advertisements does not

change the fact that the injury to Phoenix’s

commercial interests caused by the advertisements

can hardly be described as typical. Again, as noted

above, McDonald’s advertisements did not tout

McDonald’s products or services or disparage Burger

King’s products or services. Any effect, therefore, on

Burger King’s good will or reputation is absent or, at

the very least, attenuated.

2. The Directness of Phoenix's Injury

The second Conte Bros. factor looks at whether

the defendant’s conduct has had a direct effect on

either the plaintiff or the market in which the parties

participate. Joint Stock Society v. UDV North

47a

America, 266 F.3d 164, 181 (3d Cir. 2001). Phoenix

describes its alleged direct injury as stemming from

the fact that McDonald’s misrepresented the odds of

winning a few, but not all, of its prizes in certain

promotional games and that this misrepresentation

led to an “unnatural spike” in McDonald’s profits.

Phoenix then argues that customers would have

eaten at Burger King, instead of McDonald’s, had

they known that a few of the high-value prizes in

particular games were unavailable, even though all of

the other prizes could be won. Even taking Phoenix’s

allegation that there is a causal connection between

the two facts as true, it still requires Phoenix to prove

a complex causal chain. Given the length and

complexity of the causal links leading to Phoenix’s

“direct” injury, the court concludes that this factor

weighs only moderately in favor of prudential

standing.

3. Proximity of Phoenix to the Allegedly

fnjurious Conduct

The third factor requires the court to

determine whether there is an identifiable class of

persons whose “self-interest would normally motivate

them to vindicate the public interest,” thus

diminishing the “justification for allowing a more

remote party .. . to perform the offices of a private

attorney general.” Joint Stock Society, 266 F.3d at

182. The court construes the third factor as looking

at whether there is an identifiable group that is

better suited to vindicate the public interest, not at

whether there is a better group to sue for false

advertising under the Lanham Act. The court

concludes that there is.

In this case, the harm caused by McDonald’s

48a

allegedly false advertisements more directly affects

the customers who were denied the opportunity to

compete for the few high-value prizes criminally co-

opted by Jacobson. While these customers do not

have standing to sue under the Lanham Act, they

could and did vindicate the public interest by suing

McDonald’s for fraud. Thus, there is no need to

empower Phoenix to act as a private attorney general

in this case.

4. Speculativeness of the Damages

The fourth factor, the speculativeness of the

damages, weighs heavily against standing. It is

undisputed that only a few of the high-value prizes in

each game were affected by Jacobson’s criminal

behavior. It is also undisputed that the low-value

and mid-value prizes were unaffected by Jacobson’s

conduct and that McDonald’s gave away millions of

prizes in its contests. Phoenix, nevertheless, argues

that some identifiable segment of the public that was

planning on going to Burger King opted instead to go

to McDonald’s solely because it was seeking to win a

high-level prize in one of McDonald’s games.

Given the number of fast food competitors of

McDonald’s, as well as the difficulty in determining

what percentage of customers would have gone to

Burger King, and not some other restaurant, but for

McDonald's allegedly false advertisements, it is hard

to see how any damages awarded would not be highly

speculative. Further, the fact that the promotional

games took place over a period of several years in

many geographic markets throughout the world also

increases the speculativeness of the damages.

Finally, the notion that Phoenix will be able to prove

that some ascertainable number of customers visited

oT TT’ ey ' as ia |

49a

McDonald's for the specific purpose of winning one of

the few high-value prizes that were affected by

Jacobson’s criminal behavior and cared nothing for

the low-value and mid-value prizes is difficult to

imagine.

5. isk of Duplicative Damages

The fifth and final Conte Bros. factor asks the

court to assess the risk of duplicative damages and

the complexity of apportioning damages. Like the

previous factor, this factor weighs heavily against

standing. If the court were to find that Phoenix has

standing to sue McDonald’s over advertising that was

rendered false by the criminal conduct of a third

party concerning a promotional game, as opposed to

McDonald’s or Burger King’s goods or services, it

could engender copycat suits by each and every one of

McDonald’s competitors. Because damages are so

speculative, the risk of broad and overlapping

damages caused by these lawsuits is great. There is

also a great risk that Phoenix’s lawsuit will create an

administratively complex damages proceeding. .

Allowing prudential standing, moreover, would

result in a great increase in litigation. If every fast

food competitor had a cause of action for false

advertising regardless of the speculativeness of the

damages, regardless of any impact on _ the

competitor's good will or reputation, and regardless of

the remote nature of the injury suffered, the impact

on federal courts would be significant.

6. Weighing the Totality of the Conte Bros.

Factors

In sum, the first two factors weigh moderately ;

50a

or weakly in favor of standing, while the remaining

three factors weigh against prudential standing.

Although it is true that Phoenix is a direct competitor

of McDonald’s, under the Conte Bros. test, standing

does not turn on the label placed on the relationship

between the parties. Conte Bros., 165 F.3d at 235.

Given the existence of more directly injured parties,

the tenuousness and sheer speculativeness of

Phoenix’s damages claim, and the possibility of

multiple duplicative recoveries, the court concludes

that Phoenix does not have prudential standing to

bring a § 43(a) false advertising claim against

McDonald’s.

C. Whether Jacobson’s Thett is an Intervening

Cause that Severs McDonald’s LiabfiJlity and

Whether Phoenix Failed to Comply with Rule

9(b)'s Heightened Pleading Requirements

Because the court concludes that Phoenix lacks

prudential standing to assert a false advertising

claim against McDonald’s, there is no need for the

court to address McDonald’s remaining arguments in

support of dismissal.

Conclusion

For the foregoing reasons, McDonald’s motion

to dismiss [Doc. No. 13] is GRANTED to the extent

that the court concludes that Phoenix lacks

prudential standing to bring its false advertising

claim against McDonald’s. Because Phoenix’s false

advertising claim is the only claim asserted by

Phoenix, this action is DISMISSED WITH

PREJUDICE and the clerk is DIRECTED to close the

file.

SO ORDERED, this 1st day of August, 2006.

/s/ Charles A. Pannell, Jr.

CHARLES A. PANNELL, JR.

United States District Judge

52a

APPENDIX C

ORIGINAL

FILED IN CLERK’S OFFICE

U.S.D.C. Atlanta, FEB 22 2006

LUTHER D. THOMAS, Clerk

BY: /s/ Deputy Clerk

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

PHOENIX OF BROWARD, INC.

on Behalf of Itself and Similarly

Situated Burger King® Franchisees,

)

)

)

1101S. Rogers Circle, Suite 10 ) 1:06-CV-

Boca Raton, Florida 33487, ) 0394-CAP

)

Plaintiff, ) CLASS

) ACTION

Vv. y COMPLAINT

)

McDONALD’S CORPORATION, ) JURY

One McDonald Plaza ) DEMAND

Oak Brook, Iilinois 60523, ) ENDORSED

) HEREON

)

Defendant.

Phoenix of Broward, Inc. on behalf of itself and

similarly situated Burger King® Franchisees

(collectively “Class BK Franchisees”), hereby refile

their Complaint against Defendant McDonald’s

Corporation (“McDonald’s”). These Plaintiffs first

filed this Complaint in this Court on August 18, 2005,

at which time it was assigned to the Honorable

Charles A. Pannell, Jr. with the Case

53a

No. 1:05-CV-02153. Thereafter, Plaintiffs

voluntarily dismissed the case without prejudice

pursuant to Fed.R.Civ.P. 41(a) on August 26, 2005.

This Complaint is hereby refiled within the six

months provided by law. For their Complaint

against McDonald’s, the Class BK Franchisees

restate and reallege as follows:

I. INTRODUCTION

1. From July 11 through August 9, 2001,

McDonald’s marketed the 10t» anniversary of its

celebrated Monopoly promotions by offering

consumers the chance to win another million

dollars in “an exciting new... game.” Just twelve

days later, however, McDonald’s confessed to the

public not only that its anniversary game had been

rigged, but so had many of the other games which

had been its “customers’ favorites.” Indeed, a 16-

month FBI investigation had ferreted out a

sophisticated criminal ring engaged for years in

what then-U.S. Attorney General John Ashcroft

decried as a “fraud scheme” which “denied

McDonald’s customers a fair and equal chance of

winning.”

2. Although McDonald’s declined to offer an

apology, its spokesman declared that one of

McDonald’s “top priorities” was its “responsibility”

to “return the money.” A spate of litigation ensued

thereafter, during which it was disclosed that

McDonald’s games had been rigged since at least

1995 and upwards of $25 million of high-level

prizes had been wrongfully diverted from its

contests, including virtually all of the million

dollar prizes. Ultimately, years later, McDonald’s

settled multiple class action lawsuits on behalf of

54a

consumers by running another game, this time

offering 15 one million dollar prizes. McDonald’s

also paid an_ eyebrow-raising $16 million

settlement to the very company it had hired to be

responsible for the security of its games, but which

fulfilled that responsibility by employing the

ringleader of the entire scam.

3. These settlements, j0owever, pale in

comparison to the huge profits McDonald’s reaped

for years from luring customers away from its

competitors with offers of hollow chances to win

fortunes. Although McDonald’s executives have

acknowledged that such games produce an

“unnatural spike in profits,” McDonald’s has never

seen fit to compensate any of its competitors for

the losses they suffered as a result of McDonald’s

unfair competition. The Lanham Act, however,

provides federal statutory relief precisely for such

losses, which the instant Plaintiffs now

respectfully seek in this Court.

Il. PARTIES, VENUE AND SUBJECT

MATTER JURISDICTION

4. Phoenix of Broward, Inc. (“Phoenix”) is, and

at all relevant times herein was, a corporation

organized and existing under the laws of the

State of Florida with its principal place of

business at 1101 S. Rogers Circle, Suite 10, Boca

Raton, Florida 33487. Phoenix is a lcensed

Burger King Franchisee which operates a Burger

King fast food restaurant at 666 W. Broward

Blvd., Fort Lauderdale, Florida. Phoenix is also

affiliated with a number of other licensed Burger

King Franchisees which operate Burger King

restaurants at other locations in the United

55a

States (“Affiliate Franchisees”). As _ licensed

Burger King Franchisees, Phoenix and _ its

Affiliate Franchisees operate these restaurants so

that they include the recognized design, decor,

color scheme and style of buildings, as well as

uniform standards, specifications and procedures

relating to its operation, quality and uniformity of

products and services, procedures for inventory

and management.

5. Although not a_= party, Burger’ King

Corporation (“Burger King”) is, and at all relevant

times herein was, a corporation organized and

existing under the laws of the State of Florida

with its principal place of business at 5505 Blue

Lagoon Drive, Miami, Florida 33126. Burger King

franchises licensed Burger King Franchisees, such

as Phoenix and its Affiliate Franchisees, to

operate independently owned fast food restaurants

in the United States and abroad, and also directly

owns and operates fast food restaurants in all of

the United States and abroad. Since its founding

in 1954, Burger King has become one of the

leaders in the fast food industry with over 11,000

restaurant locations worldwide, which collectively

serve over 11 million customers every day.

6. McDonald’s is, and at all times relevant

herein was, a corporation organized and existing

under the laws of the State of Delaware with its

principal place of business at One McDonald

Plaza, Oak Brook, Illinois 60523. Like Burger

King, McDonald’s also owns, operates, and

franchises fast food restaurants in all of the

United States and _ abroad. There are

approximately 30,000 McDonald’s restaurants in

119 countries woridwide, of which approximately

56a

13,000 are located in the United States.

McDonald’s restaurants reportedly — serve

approximately 50 million customers every day.

7. This Court has subject matter jurisdiction

over this action pursuant to 15 U.S.C. § 1121 and

28 U.S.C. §§ 1331 and 1338.

8. Venue is proper in this District pursuant to 28

U.S.C. § 1391(b) because, snter alia, McDonald’s

resides in this District, and a substantial part of

the events giving rise to the claims occurred in

this District and Georgia.

9. McDonald’s does business in the State of

Georgia and this District, and accordingly has

registered its authorized agent for service of

process with the Georgia Secretary of State as

Prentiss Hall Systems, Inc., 40 Technology

Parkway South, No. 300, Norcross, Georgia 30092.

Ill. ALLEGATIONS COMMON TO ALL CLAIMS

A. Introduction

10. This case concerns McDonald’s false,

deceptive and/or misleading representations

concerning promotional games that McDonald’s

used to attract customers to its restaurants and

enhance customer loyalty from 1995 (if not earlier)

through at least August 2001.

11. With respect to these promotional games,

McDonald’s explicitly and implicitly represented to

the public that players stood a fair and equal

opportunity to win certain grand prizes (and even

went so far as to represent specific odds of

57a

obtaining winning game pieces), when, in fact, the

promotional games had been fixed by a criminal

ring who embezzled the high-value game pieces

and prevented the general public from winning

such prizes.

12. As the direct and proximate result of these

false, deceptive and/or misleading

misrepresentations, McDonald’s diverted business

away from Burger King Franchisees, and also

obtained windfall profits that it would not

otherwise have obtained.

B. Background

13. McDonald’s and Burger King have long been

considered the two leading competitors in the fast

food industry. Significantly, the daily competition

to draw customers into their respective

restaurants extends beyond price, food quality,

menu selections and better service to include such

other customer attractions as promotional contests

and games, playgrounds, toy giveaways (as part of

meals for children), restaurant design and tie-ins

with popular motion pictures and _ television

programs.

14. McDonald’s devotes substantial sums_ to

advertising and promoting its company-owned and

franchised restaurants and _ products. Such

advertising appears in virtually every form of

media, including television, radio and print.

McDonald’s’ reportedly spends hundreds of

millions of dollars each year on advertising. Upon

information and_ belief, McDonald’s further

requires its franchisees not only to contribute

substantial sums to McDonald’s advertising and

58a

promotic expenditures, but, inter alia, to

adhere « and participate in advertising and

promotions developed and directed by McDonald’s

for all or substantial segments of the McDonald’s

system, including the rigged games promotions

described herein.

C. McDonald’s Promotional Games

15. McDonald’s has for many years offered

patrons the opportunity to win prizes, ranging

from food and drink prizes to cash prizes of up to

$1 million, in games designed to attract customers

away from competing fast food restaurants,

including those owned by Burger’ King

Franchisees, and divert them to McDonald's

restaurants, thereby generating for McDonald’s

greater sales, customer loyalty and market share.

16. McDonald’s games have included, inter alia,

“Monopoly Game at McDonald’s,” “Hatch, Match

and Win,” “When the USA Wins You Win,” “The

Deluxe Monopoly Game,” “The Monopoly and More

Game at McDonald’s,” “Disney's Masterpiece

Collection Trivia Challenge at McDonald’s,” “Who

Wants to be a Millionaire Game,” and “Pick Your

Prize Monopoly.”

17. Each of the promotional games has had low-

value, mid-value and_ high-value prizes.

Customers have had the opportunity to become

instant winners or winners by collecting specific

game pieces. Low-value prizes have included food

items and low dollar cash prizes. High-value

prizes have included vehicles and cash of up to one

million dollars. Generally, there have been two

opportunities to win the one million dollar grand

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prize, one by obtaining the one millon dollar

instant winner game piece and one by collecting

certain game pieces.

18. Promotional games have been an important

and material part of McDonald’s advertising

strategy. Because customers’ desire’ the

opportunity to win the promoted prizes, especially

the high-value prizes, McDonald’s promotional

games have produced a substantial amount of

revenue over and above the normal revenue

stream. Such games, in fact, have been

purposefully designed to induce, and have

induced, additional customer patronage so that

customers will have more opportunities to win

instantly and/or to accumulate combinations of

winning game pieces. The consumers’ perception

that they have the opportunity to win such prizes,

especially the high-value prizes, by patronizing

McDonald’s restaurants has thus been material to

the increased product sales and corresponding

increased revenue and profits McDonald’s has

enjoyed while the promotions ran. According to a

2001 news report, Alan Feldman, then-President

and Chief Operating Officer of McDonald’s, the

Americas, credited promotions such as McDonald’s

games as generating “an unnatural spike in sales.”

a. The Scheme to Fix McDonald’s Promotional

Games

19. McDonald’s has extensively advertised and

promoted each of the games it has offered to the

public. Specifically, McDonald’s explicitly and/or

implicitly represented in commercial advertising

and promotion that all customers had a fair and

equal opportunity to win all prizes, including the

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more valuable high-value prizes. As further

explained below, such representations were

literally false, deceptive and/or misleading.

20. Moreover, McDonald’s has expressly

represented in commercial advertising and

promotion the specific odds of winning specific

prizes, including high-value prizes. As further

explained below, such representations were

literally false, deceptive and/or misleading.

21. For nearly 20 years prior to August 2001,

McDonald’s contracted with Simon Marketing, Inc.

(“Simon”) to operate its customer loyalty programs,

including promotional games such as the ones

described above, on McDonald’s behalf. At all

relevant times, Simon acted as McDonald’s agent

in conducting such customer loyalty programs.

Simon has claimed in litigation against McDonald’s

that it was a virtual captive of McDonald’s, and

reported in an SEC filing that 78 percent of

Simon’s net.sales were to McDonald’s.

22. Beginning in or about 1995 if not earlier,

Simon’s Director of Security, Jerome P. Jacobson,

a/k/a “Uncle Jerry” (“Jacobson”), who had been

entrusted with the responsibility of ensuring the

integrity of McDonald’s promotional games, began

a conspiracy to fix such games by directing rare

winning high-value game pieces to _ fellow

conspirators.

23. Between at least 1995 and August 2001,

Jacobson embezzled at least $20 million worth of

high-value prize pieces in such games as “The

Deluxe Monopoly Game at McDonald’s,” “Disney’s

Masterpiece Collection Trivia Challenge at

a a a ie

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McDonald's,” “Monopoly Game at McDonald’s,”

“Hatch, Match and Win,” “Who wants to be a

Millionaire Game,” and “Pick Your Prize

Monopoly at McDonald’s.”

24. Jacobson and/or his co-conspirators sold the

embezzled winning pieces to a host of others who

then claimed (or recruited others to claim) the

grand prizes from McDonald’s.

25. On or about April, 2000, the Federal Bureau

of Investigation (“FBI”) began an investigation of

McDonald’s promotional games. At some time

before and/or while compromised games were

underway, the FBI informed McDonald’s that

there were problems with the random distribution

of McDonald’s game pieces. Despite knowing that

the integrity of its promotional games had been

compromised, McDonald’s continued to advertise

and promote its games as though customers stood

a fair and equal chance of winning the high-value

prizes. Such representations were all literally

false, deceptive and/or misleading.

26. On August 21, 2001, the United States

Department of Justice (“DOJ”) and the FBI

announced the discovery of the Jacobson’s scheme

and the arrest of eight individuals, including

Jacobson, associated with the scheme. In

announcing the arrests, then Attorney General of

the United States, John Ashcroft, commented that

“It]his fraud scheme denied McDonald’s customers

a fair and equal chance of winning.” A corporate

press release issued by McDonald’s about the

arrests likewise quoted its Chairman and Chief

Executive Officer, Jack M. Greenberg, as

describing the scheme as “a highly sophisticated

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inside game of fraud and deception.”

27. On or about April 5, 2002, Jerome Jacobson

pleaded guilty to charges of conspiracy and mail

fraud. Approximately 50 others have also entered

guilty pleas.

28. Upon disclosure by McDonald’s to the public

that its games promotions had been fixed for years,

McDonald’s created an independent task force to

review all its promotions procedures. In response,

industry observers noted that McDonald’s

introduction of long-available, sophisticated

security procedures to ensure the integrity of its

games promotions raised disturbing questions

about its lack of vigilance in the past.

IV. CLASS ACTION ALLEGATIONS

29. Phoenix, pursuant to Rule 23 of the Federal

Rules of Civil Procedure, brings this action as a

class action on behalf of itself and all other

similarly situated Burger King® Franchisees

which operated restaurants in markets in and

outside the United States where and when

McDonald’s ran the rigged games promotions

identified herein (hereinafter “Class BK

Franchisees”).

30. Phoenix and its Affiliate Franchisees have

directly competed at all relevant times with nearby

McDonald’s fast food restaurants, which ran

McDonald’s rigged promotional games described

herein. As the direct and proximate result of

McDonald’s false, misleading and/or deceptive

advertising and unfair competition, customers

were diverted from Phoenix and its Affiliate

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Franchisees, who accordingly not only lost profits

due, inter alia, to reduced sales, but also incurred

costs in connection with common counteractive

efforts to retain those customers. Phoenix’s claims,

as well as those of its Affiliate Franchisees, are

typical of the claims of the Class BK Franchisees.

31. The members of the Class are so numerous

that the joinder of all members is impracticable.

The Class includes over 1100 Burger King

Franchisees.

32. There are questions of law and fact common

to the Class, including all of the elements of a

Lanham Act false advertising violation as follows:

(a) Whether McDonald’s' made false,

misleading and/or deceptive statements of

fact about its products in commercial

advertising and promotion;

(b) Whether such statements either deceived,

or had the capacity to deceive a

substantial segment of __ potential

customers;

(c) Whether the deception was material and

likely to influence customers’ purchasing

decisions;

(d) Whether McDonald’s products were in

interstate commerce; and

(e) Whether Class BK Franchisees have been

damaged as a result of the statements at

issue.

33. Phoenix will fairly and adequately represent

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and protect the interests of the members of the

Class. Its interests are not antagonistic to, but

rather are coincident with, the interests of other

Class members. Phoenix will vigorously

prosecute this action, and has retained counsel

who is competent and experienced in class

actions and other complex litigation, including

Lanham Act false advertising litigation, and is

fully qualified to prosecute the claims of the

Class.

34. The issues of law and fact that are common

to the Class as a whole predominate over any

questions affecting only individual members,

and a class action is superior to other available

methods for the fair and efficient adjudication of

this controversy.

35. Nearly all, if not all of the primary

questions pertinent to the liability’ of

McDonald’s are questions common to the Class

as a whole because the issues relate to the same

defendant, the same advertising, and the same

competitive injury. The only individual issues

relate to the amount of the damages suffered.

V. THE CLAIMS FOR RELIEF AGAINST

MCDONALD'S

(Violations of Section 43(a) of the Lanham Act)

36. Phoenix for itself and on behalf of the Class

BK Franchisees repeat and make a part hereof

each and every allegation set forth in paragraphs

1 through 35 of the Complaint.

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37. The Class BK Franchisees competed

directly at all relevant times with McDonald’s

restaurants which ran McDonald’s rigged

games promotions described herein.

38. McDonald’s used false, deceptive and/or

misleading descriptions of fact and/or

misrepresentations of fact regarding their

promotional games in commercial advertising

and/or promotion. These advertisements

actually deceived and/or had the tendency to

deceive a substantial part of the audience for

McDonald’s messages.

39. McDonald’s engaged in_ these false,

deceptive and/or misleading descriptions of fact

and/or misrepresentations of fact in commercial

advertising and/or promotion nationwide and

abroad, including in Georgia and in this District,

and the effects of McDonald’s acts throughout

the United States were intended to and did

injure the Class BK Franchisees, including in

Georgia and in this District.

40. McDonald’s misrepresented that each player

in its promotional games had a fair and equal

chance of winning high-value prizes and further

misrepresented the specific odds of winning such

high-value prizes.

41. McDonald’s misrepresentations

concerned McDonald’s_ products, services

and/or commercial activities.

42. The promotional games were inextricably

linked to, and in some cases physically attached

to, McDonald’s' products such as french fries and

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soft drinks. The misrepresentations were material

to their customers’ decisions to patronize

McDonald’s’ restaurants and _ to _ purchase

McDonald’s products.

43. Moreover, each promotional game piece itself

constituted a unique McDonald’s product, and

McDonald’s expressly and/or implicitly

misrepresented that players stood a fair and equal

chance of winning the grand prize with each such

piece.

44. All such misrepresentations took place in

interstate commerce.

45. When McDonald’s finally disclosed to the

public that its games had been fixed for years, a

McDonald’s spokesman identified as one of

McDonald’s “top priorities” its “responsibility” to

“return the money.” $McDonald’s’_- earned

substantial windfall and “unnatural” profits as the

direct and proximate’ result of falsely,

misleadingly and/or deceptively advertising and

promoting its fixed promotional games. An

appropriate share of such _ profits to be

demonstrated at trial should be returned to, and

are lawfully due to the Plaintiff Franchisees as

competitors injured by McDonald’s false,

misleading and/or deceptive advertising and

promotion.

46. The BK Class Franchisees have also been

damaged directly and proximately as a result of

McDonald’s false, misleading and/or deceptive

advertising and unfair competition in an amount to

be demonstrated at trial. Specifically, McDonald’s

actions have caused, inter alia, a diversion of

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trade away from the Plaintiff Franchisees.

47. Evidence continues to mount that McDonald’s

conduct was intentional and/or sufficiently

reckless over all or some of the period its games

were rigged, above and beyond the conduct

required for liability under § 43(a) of the Lanham

Act, to subject McDonald’s to treble damages or an

award above McDonald’s profits, pursuant to 15

U.S.C. § 35.

48. After learning that its games had been

compromised sometime before August 2001,

McDonald’s knowingly and deliberately continued

to advertise and promote its promotional games as

though the games were fair.

49. Reactions in the industry to the scandal also

included such concerns as McDonald’s “disturbing

lack of vigilance in the past.” These observations

and industry custom and practice reinforce that

McDonald’s knowingly and/or _ sufficiently

recklessly failed to timely institute proper

procedures to ensure the integrity of its games

promotions. Even the “Blue Ribbon Panel of

Advisors” which McDonald’s subsequently

appointed to review its promotional game security

procedures rejected McDonald’s long-time practice

of “a single party overseeing game security.” Here

that “single party” for twenty years was Simon:

not only a self-proclaimed “captive” of McDonald’s,

but the employer of the ringleader of the criminal

scheme. And yet, McDonald’s chose to settle its

claims against Simon concerning the rigging of its

games by paying Simon a settlement worth $16

million!

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50. Upon information and belief, a prosecuting

attorney for the United States also elicited sworn

testimony in one of the criminal] trials indicating

that even though computer programs’ were

supposed to randomly select where the big prizes

would go, McDonald’s was involved in rerunning

some of these programs’ under _ suspect

circumstances.

51. Upon information and _ belief, McDonald’s

responded to the original filing of this Complaint

with the terse statement to the press that “our

customers ... [halve moved on and so have we.”

(Emphasis added). This suit is intended to ensure

that before “moving on,” McDonald’s returns to the

Class BK Franchisees what they are rightfully due

under the law from the wrongful and deceptive

diversion of their customers.

DEMAND FOR JUDGMENT

WHEREFORE, Phoenix for itself and the

Class BK Franchisees demand:

1. That this Court declare this Complaint as a

proper class action pursuant to Rule 23 of the

Federal Rules of Civil Procedure and certify the

Class defined herein;

2. That this Court order McDonald’s to disgorge

an appropriate share of all profits associated with

sales generated by the fixed promotional games;

3. That this Court award to Phoenix and the

Class BK Franchisees their actual damages, in

amounts to be demonstrated at trial for the harms

directly and proximately caused by McDonald’s

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false, deceptive and/or misleading advertising,

promotion and/or marketing:

4. That this Court award Phoenix and the Class

BK Franchisees, treble the proof of actual damages

and/or an award above McDonald’s_ profits,

pursuant to 15 U.S.C. § 35:

5. That this Court award Phoenix and the Class

BK Franchisees, other damages incurred,

including, but not limited to the costs of price

reductions, promotions and other advertising costs

incurred to respond to the fixed promotional

games;

6. That this Court award Phoenix and the Class

BK Franchisees, the costs and expenses they have

incurred, including all reasonable attorneys’ fees:

7. That this Court award Phoenix and the Class

BK Franchisees, pre-judgment and post-judgment

interest; and

8. That this Court grants Phoenix and the Class

BK Franchisees, such other and further relief as

the Court deems just and proper.

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A TRIAL BY JURY IS DEMANDED FOR ALL

ISSUES SO TRIABLE.

Respectfully submitted,

/s/__Irwin W. Stolz

Irwin W. Stolz (Georgia #683700)

WINBURN, LEWIS, BARROW &

STOLZ

279 Meigs Street

Athens, Georgia 30601

Phone (706) 353-6585

Fax: (706) 354-1785

E-mail: zsto/z@athens.net

Attorneys for Plaintiff

Phoenix of Broward, Inc. on Behalf of

Itself

and Similarly Situated Burger King®

Franchisees

Of Counsel:

David C. Weiner (Ohio #0013351)

Charna E. Sherman (Ohio #0045862)

SQUIRE, SANDERS & DEMPSEY L.L.P .

4900 Key Tower

127 Public Square

Cleveland, Ohio 44114-1304

Phone: (216) 479-8500

Fax: (216) 479-8780

E-mail: dweiner@ssd.com

E-mail: cesherman@ssd.com

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Walter Weir, Jr. (Pennsylvania #23137)

WEIR & PARTNERS LLP

The Widener Building, Suite 500

1339 Chestnut Street

Philadelphia, Pennsylvania 19107

Phone: (215) 665-8181

Fax: (215) 665-8464

E-mail: www@weirpartners.com