Discussion of the motion to dismiss. Insignia and NAMI directly compete in the in-store promotions business. They enter into contracts with manufacturers and retailers, selling the former advertising tactics and services for putting products in stores, and buying from the latter the right to carry out those tactics in stores. The tactics include print and electronic signs, end-of-aisle displays, freezer displays, floor signs, cart ads, and coupons. Manufacturers typically demand that the parties promote only their products within a particular product category for specified periods, often four-week cycles, which is known as category exclusivity. Manufacturers can also bypass third parties and work directly with retailers such as grocery stores, drugstores, mass retailers, home improvement stores, and bargain chains. NAMI often puts “retail exclusivity” clauses in its contracts with retailers, excluding other providers of similar promotional vehicles. Retail exclusivity can maximize ad effectiveness for manufacturers, who pay more to third parties who can secure retail exclusivity. Many retailers, however, negotiate to carve out exceptions to exclusivity for particular tactics offered by other third parties or by the retailer itself.
NAMI’s offerings include shelf-mounted coupon dispensing machines, floor decal ads, shopping cart ads, and shelf signs with brand messages and product prices. NAMI touts “one-stop shopping” for manufacturers’ in-store promotion needs. Insignia’s offerings are more limited, mainly to the “POPSign” shelf ad, which incorporates both a brand message and a product price. It has had marketplace success, with around 7.5x the sales of NAMI’s shelf ad product in 2007 (a total for Insignia of over $20 million). There’s a third main competitor in the market for at-shelf ads, FLOORgraphics, but most of its sales are for floor decals. The top three firms’ revenue grew from $292 million to $393 million between 2002 and 2006, with NAMI accounting for 90% of that growth.
NAMI and its competitors manage implementation either by having retailers install the tactics or providing their own field force. They measure compliance based on the percentage of contracted-for tactics actually displayed in stores. Insignia has retailers install its signs. NAMI noted that compliance rates are lower for retailer-installed programs than for field-force-installed ones, and NAMI discontinued retailer installation in 2003; afterwards, it guaranteed at least 90% compliance. Prior to that, it audited compliance rates of several programs, including Insignia’s. According to NAMI, Insignia’s retailer-installed program had compliance rates under 20%, while FLOORGraphic’s was under 50%. Insignia contended that the audit was flawed, and that its compliance rate was 75% or higher during the relevant time period. Insignia also argued that NAMI misrepresented the size of its field force as 10,000 employees and misrepresented the source of audit data by claiming that it came from syndicated data suppliers outside NAMI.
Along with discontinuing retail installation, NAMI also sent a letter to manufacturers about the results of its audit to promote its new field-force installation model: “Did you know that most in-store marketing services providers rely on retailers or subcontracted field labor to execute the programs that YOU buy? This means that on average, less than half the stores that you contracted for are ultimately installed. Less than half! We know that from a variety of sources, including client feedback, industry intelligence and a range of audit studies. In fact, our latest audit studies confirm this, as the results indicated that FLOORgraphics compliance averages were once again below 50%. Even more glaring is that in these same studies, Insignia POPS was found to have executed in less than 20% of the stores we surveyed. Certainly, this is not the most optimal spend of your media dollars. After all, how effective can an in-store program be if it's not actually seen in-store?
“At News America Marketing, we operate differently. We take field execution extremely seriously. We have a dedicated in-house Field force that is 10,000k people strong. These field professionals are our employees. They are not subcontracted. As a result, we are able to consistently deliver average compliance rates of 90-95%!”
NAMI continued to use these compliance figures in marketing. Insignia sued for antitrust violations and false advertising/disparagement; NAMI counterclaimed for intentional inducement to breach contract and false advertising/disparagement by Insignia’s president.
The antitrust claims were based on NAMI’s exclusive contracts with retailers (which included NAMI representatives taking down Insignia ads that Insignia had contracted to provide) and false statements about Insignia’s compliance rates. The court largely denied NAMI’s summary judgment motion on the antitrust claims, finding triable issues of fact on antitrust injury, including loss of business from the distribution of NAMI’s audit results as well as from the exclusive contracts.
Likewise, the court couldn’t resolve the definition of the relevant market on summary judgment; there was evidence on both sides. And it found a disputed fact issue about whether NAMI’s conduct was anticompetitive and likely to produce a monopoly and about whether NAMI engaged in attempted monopolization, though it found that there was insufficient evidence that NAMI had monopsony power.
NAMI argued that disparagement couldn’t be anticompetitive conduct because commercial speech isn’t actionable under antitrust law. Citing Seventh Circuit precedent, NAMI argued that false statements about a rival’s goods are not monopolistic because they don’t drive up prices by curtailing output, either in the short run or the long run; they just set the stage for competition in the market for advertising. (Hunh?) The Eighth Circuit, however, has upheld false-advertising-as-monopolization claims where the false statements were made with the intent to prevent the plaintiff from becoming a competitive threat. The court agreed that, while generally false or disparaging statements don’t injure competition, they can do so under certain circumstances, and those circumstances were arguably present here. If NAMI distributed false audit results with the intent to eliminate competition, that could contribute to the willful maintenance of monopoly power. Because NAMI had relatively few competitors in Insignia’s proposed market, misrepresentation of those competitors’ compliance rates could cause harm to competition. In addition, the evidence could support a finding of an unlawful agreement among NAMI and retailers.
On the Lanham Act claims, NAMI argued that Insignia hadn’t shown injury. Given that the statements were comparative, Insignia would be entitled to a presumption of causation and harm upon showing falsity. Separately, Insignia had provided evidence of harm. As to falsity, Insignia produced evidence that NAMI selectively reported audit results to make Insignia look worse; that the audit was methodologically flawed and not the same method NAMI used for its own audits; and that clients relied on the letter with the audit claims. The court nonetheless remained somewhat skeptical about the credibility of Insignia’s damages claims and its ability to show NAMI’s market power.
NAMI’s counterclaims were for false advertising, tortious interference, and related business torts. NAMI couldn’t show damages for many of its claims, so the court would only consider declaratory or injunctive relief on them.
NAMI argued that Insignia made false and disparaging statements to manufacturers, retailers, and the public that NAMI was engaging in unlawful, anticompetitive conduct. For example, in letter to manufacturers and retailers, Insignia claimed: “We believe that the purpose of the disparagement of Insignia’s and FLOORgraphics’ compliance is to irreparably harm Insignia and FLOORgraphics, NAM’s two primary competitors in the in-store promotional marketplace.
“.... [In a letter from a NAM executive to CPGs] NAM proposed a backroom deal in which one of the key objectives was to substantially reduce the payments that retailers like you receive for putting up our signs.”
Another letter stated, “[NAMI] is on a mission to destroy competition from FLOORgraphics, Inc. and Insignia POPS.® If NAMIS succeeds in this mission, your company is likely to pay higher prices for the NAMIS product line. Further, you will experience situations in which you are locked out of major categories for extended periods of time. The NAMIS vision for the future is to charge brands more and pay the retailers less.” There were other letters and remarks in a similar vein, including a conference call in which Insignia noted pessimism about short-term revenue prospects from POPSigns sales due “primarily” to the “cumulative effects of illegal anti-competitive conduct by News America.” NAMI also alleges that Insignia persuaded retailers and manufacturers that its exclusivity provisions were unenforceable and that Insignia could place its products in stores simultaneously with NAMI's products.
The first question was whether the allegations of anticompetitive conduct were statements of fact or opinion. The caselaw on statements about the legality of another party’s conduct is divided. The court determined that statements on unsettled areas of the law are opinion, but if the law is settled, then a statement can be factual; because federal and state antitrust law is clearly established, Insignia can’t get out of the claims automatically. However, the particular statements here were nonactionable statements of opinion; they were not provably false as required for defamation, because they advocated one of several feasible interpretations of events. Insignia used language indicating that it was engaging in interpretation (“we think you will agree,” “we believe,” “from our perspective”), and though that’s not controlling when opinions imply assertions of objective fact, the specific statements were feasible interpretations of NAMI’s conduct. The statement in the conference call was made in the context of discussing the present litigation. Likewise, to the extent that NAMI argued that it was false to tell retailers that the exclusive contracts were unlawful and unenforceable, the court found that Insignia referred retailers to a Department of Justice investigation into exclusivity provisions in in-store promotions contracts, and NAMI submitted no evidence that Justice was not in fact investigating.
Even if the statements had been actionable factual statements, the court found a qualified privilege. The court had denied a motion to dismiss because NAMI had sufficiently alleged knowing falsity and unfair purpose, but at summary judgment there was no evidence Insignia knew its statements were false, and in fact Insignia had submitted evidence supporting its interpretation. “[E]ven now NAMI cannot demonstrate the threshold issue of falsity, as a finder of fact has yet to determine whether the underlying antitrust claims are viable.”
(Note that the Lanham Act’s strict liability scheme diverges from traditional defamation law; implicit here is a holding that Lanham Act strict liability is for some reason inappropriate when the allegedly false claims are about legality. This is similar to the common-law modfication judges have made to the Lanham Act when false claims about patent status are alleged. It’s not that I disagree with this outcome, but it highlights a real failure to theorize strict liability in the Lanham Act. What makes false claims about the law different from false claims about product efficacy, which can also be extremely difficult and expensive to determine with any finality?)
NAMI sought prospective relief on its tortious interference claims so that Insignia would no longer get retailers to breach their exclusive contracts with NAMI. NAMI argued that despite knowing about NAMI’s contracts, Insignia contracted with 12 retailers during their exclusivity periods and sent shelf signs to those retailers in violation of the exclusivity clauses. (The details are interesting, to me at least: Insignia allegedly sent tear-off cards to retailers, printed both with price and a product image/brand equity message; if the price changed, the retailer could tear off the price and retain the product/brand information. NAMI argued that Insignia knew that retail employees wouldn’t reliably write in new prices after tearing off the inaccurate ones, leaving the torn cards in violation of NAMI exclusivity arrangements that specified that NAMI would supply all signs that gave only brand equity messages.) In addition, NAMI alleged that Insignia misled retailers about the scope and enforceability of NAMI’s exclusivity provisions.
NAMI didn’t identify the twelve retailers who allegedly breached their contracts, nor did it identify the exclusivity provisions that were allegedly breached. NAMI apparently hadn’t sued or otherwise gone after the twelve retailers. Absent evidence of breach, the court granted summary judgment on these claims. Likewise, NAMI didn’t offer sufficient evidence of injury to prospective business relationships. “Even to the extent that NAMI offers evidence that the value of its exclusivity provisions was reduced by Insignia’s alleged interference, NAMI has produced no evidence that such interference actually harmed prospective business relationships or that retailers or [manufacturers] decided not to do business with NAMI as a consequence.”
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