Thursday, April 20, 2017

Presumptions and evidence of causation both work in false advertising cases

Robroy Indus.–Texas, LLC v. Thomas & Betts Corp., No. 15-CV-512, No. 2:16-CV-198, 2017 WL 1370545 (E.D. Tex. Apr. 10, 2017)

T&B and Robroy compete in the market for PVC-coated electrical conduit, which is used to carry electrical wiring in buildings or other structures. The parties are the major suppliers of PVC-coated electrical conduit in the United States; T&B’s conduit is known as “Ocal.”  Robroy alleged that T&B made a number of false claims that only its Ocal products had certain features, such as meeting the UL 6 standard, the ANSI C80.1 standard, and the NEMA RN-1 standard, all significant industry standards.
 T&B also claimed that “only Ocal” offers local installation training and certification. And its promotional materials claimed that Robroy “abrade[s] the surface of the conduit prior to the application of the PVC,” thereby “remov[ing] the protective coatings that the customer is paying for.” T&B further claimed that “UL standards are not being followed by the abrading of the conduits [sic] exterior zinc finish.”

T&B argued that there was insufficient evidence of harm causation to survive summary judgment. The court disagreed.  T&B had three key arguments (1) that Robroy has never been “kicked off” a specification for PVC-coated conduit for any reason related to the T&B statements at issue; (2) the evidence shows that customers made purchasing decisions based on price, quality, availability, and other factors having nothing to do with the alleged false statements; and (3) the evidence shows that customers made decisions to add T&B’s Ocal product to the specifications for particular projects and to purchase Ocal based on price and other factors, not because of the allegedly false statements.

The court agreed with Robroy that, because this was a case of allegedly deliberately false comparative advertising in a functionally two-party market, causation could be presumed.  [Why “deliberately”?  The two-party market situation appears independently significant, assuming the claim is material; the deliberateness might justify a presumption of effectiveness as well. But that’s what the cases say.] A number of circuits and district courts have adopted this rule; no case appears to have rejected it; and the Fifth Circuit hasn’t said anything to cast it into doubt.  Causation is required by the Lanham Act, but “that does not speak to whether and under what circumstances that element can be satisfied by a presumption.”  Also, “[g]iven that courts have uniformly recognized the presumption for the past 30 years, Congress’s silence in the face of that now well-established line of authority suggests, if anything, that Congress is satisfied with the status quo.”

T&B argued that this wasn’t really a two-party market, but Robroy provided evidence that “during the period at issue in this case, the PVC-coated electrical conduct market has been effectively a two-competitor market.” Also, some of the allegedly false statements were directed at Robroy by name, and many of the challenged statements were comparative, which would be understood as referring to Robroy by clear implication.  Summary judgment on causation denied.

Separately, there was evidence about actual causation. Robroy’s theory of the case was:

(1) in order to bid on a project, a manufacturer was required to be included on the specification for the project; (2) there were numerous projects on which T&B was not initially on the specification; (3) those contracts would have gone to Robroy but for T&B’s actions that resulted in T&B being added to the project specifications; (4) it was T&B’s false statements that caused project managers and engineers to alter the specifications to include T&B as a qualified bidder on those projects; and (5) on those projects on which T&B won the contract, Robroy suffered injury from the loss of a contract it would have won but for T&B’s false advertising.

While it might be true that in particular instances customers chose T&B’s products over Robroy’s products for reasons other than T&B’s false statements, Robroy argued, that occurred after the stage of the process in which the project engineers were persuaded to alter the specifications for their projects to allow T&B to bid, which was the critical point at which the false advertising was allegedly effective.  If T&B hadn’t been allowed to bid, according to Robroy’s evidence, “on many of the projects the specifications initially called for Robroy products or required quality assurances that only Robroy could meet.” The critical step was project engineers’ decisions to “open” the specifications to allow T&B to bid on the projects.  And there was evidence in the record that this “opening” at least sometimes came as a result of the challenged statements.  [Is there an analogy here to bait-and-switch initial interest confusion?  Initial qualification deception?]  The allegedly false statements were clearly designed toward getting engineers to open the specs.  E.g., “a form letter including several of these false statements was posted on an internal bulletin board that was available to the project specification specialists at T&B who were responsible for attempting to ‘break’ specifications that specified only Robroy products or ETL-listed conduit.”  And T&B reps claimed success in their endeavors. One internal comment: “That job was specified [Robroy] but with the help of you and T[o]m Russ [a senior T&B sales representative who promoted the use of the “only Ocal” material during efforts to “break” specifications] we were able to open it up to Ocal.”

Pizza Hut, Inc. v. Papa John’s Int’l, Inc., 227 F.3d 489 (5th Cir. 2000), found that evidence of subjective intent to deceive on the part of the defendants’ executives was insufficient to show that the false advertising in question actually succeeded in persuading customers to buy the defendant’s products instead of the plaintiff’s.  However, here there was “evidence—including statements by T&B representatives—that the effort succeeded.”

The evidence was mostly circumstantial, and circumstantial evidence isn’t always enough, but here it was.  “This is not a case in which the proof is limited to showing no more than that the defendant’s representatives intended to mislead potential customers or that false statements were made in the course of competitive bidding, after which one party lost the project.” On Robroy’s evidence, Robroy was “essentially guaranteed to be awarded a contract on those projects, until T&B ‘broke’ the specifications, obtained the right to bid, and ultimately was awarded the contract.” It was reasonable to infer that the challenged statements played a pivotal role in the customers’ decisions to allow T&B to bid on the projects, even if there might also be other reasons that engineers might have opened the specs. The inference of causation was “strengthened by the evidence that T&B’s own representatives expressed their view that the characterizations of Robroy were responsible for the engineers’ decisions to open the specifications to bidding by T&B, and that one of the project engineers repeated one such alleged falsehood when changing the specification to allow T&B to bid.”

Robroy’s state-law unfair competition claim under the common law also proceeded.

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