Wednesday, June 13, 2018

Second Circuit rejects falsity by necessary implication claim for UL certification

Board-Tech Electronic Co. v. Eaton Corporation, Cooper Wiring Devices, Inc., --- Fed.Appx. ----, 2018 WL 2901336, No. 17-3829-cv (2d Cir. Jun. 11, 2018)

Board-Tech and Eaton compete in the market for decorative light switches. Underwriters Laboratories (UL) is an independent entity that tests, verifies, and endorses the safety of various electronic products; its imprimatur is commercially necessary for light switches in the US.  UL licenses the “UL 20” certification mark to products that meet its safety standards. Manufacturers must submit “representative samples” of their product to UL; if the samples pass the tests, UL authorizes the manufacturer to advertise and label its products as “UL 20” compliant.

Eaton markets its light switches as UL 20 compliant. Board-Tech alleged that its in-house engineers independently tested UL 20 compliance of eight sets of six light switches and that each of the 48 light switch units failed. Thus, it alleged false advertising, despite Eaton’s authorization from UL to use “UL 20.” Board-Tech didn’t send its test results to UL, and UL has taken no relevant action.

Board-Tech’s allegations couldn’t establish literal falsity, because they didn’t negate the fact that the product was indeed certified by UL.  Board-Tech argued falsity by necessary implication: UL 20 certification necessarily implies that the product purchased will hold up to the UL 20 standard.  But UL certification represents that a sampling of products complied with UL standards when UL tested the products, not that every single unit will perform the same way when tested by different entities. “To satisfy literal falsity under a theory of necessary implication, Board-Tech needs to allege sufficient facts to show that Underwriters Laboratories considers Eaton’s products non-compliant—not just that someone else does…. Board-Tech’s testing, absent additional indicia of non-compliance, does not render Eaton’s use of the UL 20 mark literally false.”  This contrasted to a previous case where the competitor’s product was altered and found on retesting by UL to be non-compliant.  In that case, “[h]olding [a product] out to be UL approved” after materially changing it “constituted a false representation.” “Without any indication that UL decertified the defendant’s product—or (perhaps) that the defendant’s product had materially changed since certification—there would be no plausible allegation of a false statement.” This has a Twiqbal twist: “To merit discovery into its competitor’s product lines and tradecraft, Board-Tech must ‘raise a reasonable expectation that discovery will reveal evidence’ tending to show UL would find Eaton’s products non-compliant.”

[Query: would Volkswagen’s defeat devices for emissions tests satisfy the court’s qualifications?  I can see it argued either way.  The problem is what it would mean for UL to “consider[]” (present tense) products non-compliant.  Is it literally false once you allege facts that, if true, would establish that no reasonable entity could consider its standards satisfied? That seems to be one reading of the “additional indicia” line. Or do you have to allege that the entity has come to a decision on the matter? I think the court wants to preserve space for the Volkswagen situation to be literally false by necessary implication, but it’s a bit tricky to do! Certainly the VW product didn’t materially change since certification; it just acquired that certification through falsehood.]

What about misleadingness? That requires extrinsic evidence, and the complaint didn’t offer other than conclusory allegations that consumers had been misled or confused.

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