False statements in business-to-business contexts

Allsup, Inc. v. Advantage 2000 Consultants, Inc., -- F.3d --, 2005 WL 3054130 (8th Cir. 2005), was a slightly unusual Lanham Act case. The defendant A2K had been formed by former employees of the plaintiff. Basically, plaintiff offers services to insurance carriers, helping them reclaim benefits overpaid to insureds. In 2001/2002, three insurance carriers asked A2K to bid on their overpayment recovery business; A2K did so, representing that it would be capable of providing overpayment recovery services in time to fulfill any contracts that it won. Allsup claimed that it was in the process of patenting its automated overpayment recovery system and threatened to sue; A2K withdrew its bids.

Not satisfied, Allsup sued for reverse passing off, false advertising, and state common-law claims. The district court dismissed all claims and Allsup appealed on the false advertising count. (I didn't go back and check, but I'm guessing Dastar had something to do with the failure of the reverse passing off claim.) The allegedly false claims dealt with A2K's claims that it would, in the future, enter the overpayment recovery market and be able to serve insurers.

Though there are many possible issues -- whether statements to only three companies can constitute "advertising or promotion" within the meaning of the Lanham Act; whether the statements of future intent constituted representations of fact or opinion; whether the highly sophisticated targets of A2K's claims should understand the difference between an operational business and a planned business; and so on -- the court of appeals found it sufficient to address simple falsity. Though A2K ultimately didn't enter the overpayment recovery market, Allsup put forth no evidence that A2K lacked either capacity or intent to do so at the time it made the representations. (Here is an unusual instance where intent is directly relevant to a Lanham Act claim, much as it is relevant in a bait-and-switch claim.)

The court did bobble a bit on implied falsity, simply reiterating that A2K's statements about intent and capacity were true, as if that were the end of the matter. Some true claims can, of course, be misleading; the court may have meant that Allsup identified no potentially misleading implications of these particular true statements, and in any event offered no evidence that a reasonable insurance company might have been misled. Interestingly, the court contrasted "literally false" statements with statements that are "false in context," which is not quite the same thing as implicitly false statements, though there is doubtless some overlap. I'm reminded of the Avis/Hertz case, which held that claims about how many cars a rental company "has" were not literally false when they were true of the available rental fleet though not true of the total cars owned by the companies; the context of an ad for rental cars made the claim literally true.