An officially licensed retailer of NFL merchandise recently filed a class action lawsuit against Facebook Inc., accusing the social networking giant of running advertisements for counterfeit NFL products in prominent “Sponsored” advertisements. See Inkies Sports, Inc. v. Facebook Inc., No. 1:12-cv-01095 (D.N.M. Oct. 22, 2012). Inkies Sports, Inc., which does business as Krystal’s NFL Shoppe in New Mexico and on the Internet, purports to represent all retailers and wholesalers of officially licensed NFL apparel who have been similarly harmed by the advertising of counterfeit goods on Facebook.

According to the complaint, Facebook and online advertising companies adSage Corp. and DHgate.com have allegedly enabled the proliferation of advertisements for cheap counterfeit NFL merchandise by numerous websites operating out of China. The plaintiff claims that the defendant advertising companies act as intermediaries in allowing counterfeiters to circumvent strict Internet censorship by the Chinese government. Specifically, because China blocks access to social networking websites like Facebook, counterfeiters must go through US.-based middlemen in order to promote their products on Facebook, and the plaintiff argues that the defendants willingly fulfill this role.

The ads for the allegedly counterfeit goods use terms such as “cheap,” “sale,” and “wholesale” to explain the extremely low prices of the goods, which are routinely 80 to 90 percent lower than the MSRP of officially licensed NFL merchandise. The complaint states that the ads appear on the right-hand side of Facebook web pages and, at least in the eyes of average Facebook users, are virtually indistinguishable from ads for authentic merchandise. Indeed, some of the ads have even shown up on the plaintiff’s own Facebook page, allegedly causing confusion among Facebook users regarding whether the plaintiff itself is affiliated with the Chinese companies.

Despite its repeated public and private complaints to Facebook, the plaintiff asserts that it never received a satisfactory reply from the company. It therefore chose to file the class action, which asserts claims of unfair competition and seeks undisclosed damages, but notes that “the economic impact on Krystal’s and other members of the class . . . is undoubtedly material and likely runs into the many millions of dollars.”

Arent Fox will continue to monitor this case. For more information, please contact Sarah Bruno, Anthony Lupo, or Anthony Peluso.