Sunday, September 06, 2009

Dispute fueled by inappropriate tests

Star-Brite Distributing, Inc. v. Kop-Coat, Inc., --- F.Supp.2d ----, 2009 WL 2840723 (S.D. Fla.)

Star-Brite’s StarTron competes with Kop-Coat’s Valvtect VEGA; they are ethanol gasoline additives sold to boat owners and marinas to improve boat fuel performance. Star-Brite sued for state and federal false advertising/unfair competition. It won its motion for preliminary injunction against Kop-Coat’s comparative ads.

StarTron was one of the first ethanol additives to the maritime market, gaining a dominant market share and benefiting from the relatively recent federal mandate to switch maritime fuel to 10% ethanol, because such fuel doesn’t burn as efficiently as regular gas. StarTron’s active ingredients are enzymes, while VEGA is a proprietary formulation of chemical additives generally used in the refinery and fuel industry. Valvtect has been in the business of petroleum fuel additives since 1987, and believed that StarTron was inferior. It set out to test Star-Brite’s ad claims on fuel stability, corrosion resistance, water control and prevention of carbon deposit build-up. It used its test results in developing its own product and in comparison ads.

Valvtect used the ASTM D525 test to compare the products’ fuel stability, which is a measure of the shelf life of fuel before it starts to turn into gummy sludge. ASTM D525 is a generally accepted test for gas that needs to be run at temperatures of 212°F, “far in excess of conditions that virtually any boater’s fuel tank would ever experience.” It was not designed to test 10% ethanol based fuels, and the test protocol specifically notes that the data were developed from gas without oxygenates such as ethanol. Enzymes (such as those in StarTron) are more sensitive to high temperatures than traditional chemical additives. Thus, that StarTron may not perform well at 212°F, but still may work well under normal operating marine conditions. In addition, Kop-Coat never ran the D525 tests on 10% ethanol fuels, despite the fact that the products are ethanol fuel additives.

In its ad, Kop-Coat asserted that Valvtect improved stability by 138% while StarTron only improved stability by 4%. Kop-Coat’s fuels expert revealed on cross that more recent tests performed by its independent lab showed stability improvements by StarTron on ethanol fuel of nearly 60%. This is consistent with Star-Brite’s results using the 525 protocol at the same independent lab.

So: even if the 525 protocol is the industry standard for regular gas engines, it’s not right for the marine market, making its use misleading.

There were similar problems with the comparison claiming superiority in “rust,” later amended to “corrosion”: the tests weren’t designed to measure how fuel behaved in standing aqueous conditions, i.e., in the tank, and they weren’t designed to measure what happened in tanks made of aluminum or polyethylene, as marine fuel tanks are. The court found these ads misleading, though not literally false. (Why? This is a false “tests prove” claim, because the tests don’t prove what they say.)

Likewise, the test Valvtect used for water control was designed for aviation fuels, which doesn’t have ethanol. And its claim that StarTron was 50% less effective was based on small differences in parts per million that were both statistically insignificant and below the level that would trigger a problem—that is, water content is generally well below a risky level and both parties’ products make it even lower. So the 50% claim was again misleading but not literally false. (This type of case, by the way, is why I dislike the rigid false/misleading doctrine.)

And finally: all gas products tend to leave carbon deposits in engines, potentially causing problems. Refiners typically treat gas with chemicals to control these deposits, though usually with the minimum amount required by the EPA. VEGA uses more of the approved additives than required, and StarTron hasn’t disclosed whether it uses any of the EPA-approved additives. Valvtect’s initial ad invoked the EPA as well as BMW, Chrysler, Ford & GM (involved in establishing the tests for EPA approval) in a way that misleadingly suggested these parties’ approval of Valvtect. The revised ad, which suggests that Valvtect meets ASTM and EPA standards and “keeps injectors & carburetors clean,” was not misleading or false in this respect, according to the court.

Two key Star-Brite employees testified that numerous retailers and customers had asked “on a daily basis” about Valvtect’s claims. Everyone from large national merchandise managers to regional retailers to individual boat owners asked whether these claims were true. Valvtect’s president conceded that the ads were designed to influence boaters to switch. The court found both materiality and likely deception. (Note here that this is neither survey evidence nor direct testimony from deceived consumers; nor does the court find intent to deceive, as opposed to intent to influence. So the court finds misleadingness, but treats it—from the rigid doctrinal perspective that is honored more in the breach than the observance—more like falsity.)

Somewhat oddly, the court said that because this was a “tests prove” case, Star-Brite had an “additional burden” to show that the tests didn’t establish the proposition for which they were cited. Other courts have called this a lighter burden, because the plaintiff need not falsify the underlying proposition but only show that the cited tests don’t support it. Pedantically, I’d say the burden is always the same: show that something material in the ad is false (the materiality of the claim “tests prove” being assumed, because scientific evidence is more credible than bald assertion). Anyway, Star-Brite met its burden on the first three claims. Even though the tests Valvtect used might have been appropriate in the general petroleum industry, they weren’t fit for their purpose here, comparing to an enzyme-based product in the maritime fuel market.

The court then repeated the misleading, not false, assessment, then said that Star-Brite’s testimony established deception. (You can shove this into the “evidence of deception” category if you accept that when we say “deception” we really mean “reception of a false message.” The consumers who contacted Star-Brite received the misleading claims, but weren’t sure whether to believe them. In general, reception is all we require false advertising plaintiffs to show, among other things because a false advertiser shouldn’t get a pass on polluting the ad environment further just because consumers know that they can’t believe everything they read.)

The other preliminary injunction factors naturally favored Star-Brite as well.

Side note: when Hamlet talks about a custom honored more in the breach than in the observance, he means that it is more honorable to breach the “custom” than to observe it. That’s how I mean it too, though there’s a good argument to be made that the past decade has seen as much evasion of the false/misleading dichotomy as adherence to it, via the epicycles added by puffery and falsity by necessary implication.

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