In Twentieth Century Fox Film Corp. v. Marvel Enterprises, Inc. et al., the Second Circuit Court of Appeals held that a licensee has standing to assert a claim against its licensor for false advertising, but not a claim for false designation of origin.

Twentieth Century Fox (Fox) had licensed from Marvel the right to produce a motion picture based on Marvel’s X-Men comic strip series. The resulting film X-Men was released in 2000 and grossed more than $290 million in theaters. When Marvel subsequently entered into an agreement with other parties to produce a related television series called Mutant X, Fox brought suit. The district court denied Fox’s motion for a preliminary injunction on its breach of contract claim and dismissed Fox’s claims for false advertising and false designation of origin under Lanham Act §43(a).

The Second Circuit affirmed the denial of a preliminary injunction, noting that any damage to Fox could be remedied with a monetary award and that Fox’s possible future production of an X-Men film sequel did not justify enjoining a television series already in production. The appellate court then turned its attention to the dismissal of the Lanham Act claims.

The court upheld the dismissal of Fox’s claim for alleged false designation of origin, reasoning that the “origin” of both the television series and the film is the licensor, Marvel. Thus, Fox, as a mere licensee, could not claim impairment of any goodwill in the X-Men property. The Second Circuit, however, found that Fox had standing to pursue its claim against Marvel for falsely advertising the Mutant X television series as a “spin-off” of the“X-Men movie”. Noting that Lanham Act §43(a) does not preclude all actions by a licensee against its licensor (such as where the licensor makes false claims to promote a competing product or falsely disparages the licensee’s product), the court concluded that there is “no reason why a false advertising claim may not be brought by a licensee just because the alleged violator is the licensor”.

In reaching this conclusion, the Second Circuit cited the important distinction between Fox’s claims for false designation of origin and false advertising. Marvel’s suggestion of a link between the television series and the movie, the court noted, constitutes false advertising. Such linkage does not, however, falsely suggest that the television series originated with Fox, as would be the case, for example, if Marvel affirmatively represented that the series was produced by Fox.