Thursday, September 28, 2006

The difference between 20,000 and 1,500

As it turns out, without sufficient evidence, the difference is not a Lanham Act loss.

Select Portfolio Servicing, Inc. v. Evaluation Solutions, L.L.C., 2006 WL 2691784 (M.D. Fla.)

Plaintiff and defendant are competing real estate companies that assess the value of residential real estate. Defendant’s principals are former employees of plaintiff. (There are complications of corporate form that are not relevant to this discussion.) Plaintiff sued on a variety of theories; the only one I’ll discuss is the Lanham Act claim, on which the court denied preliminary relief as it did all other claims.

The Lanham Act claim was based on defendant’s advertising that it had a network “20,000 strong” of affiliates who could provide reliable appraisals. In fact, defendant only had about 1,500 brokers and appraisers – and lamely claimed that “20,000” was puffery, which it quite clearly isn’t since it’s both specific and believable.

Though plaintiff had evidence of actual falsity (indeed, the defendant’s puffery claim was a concession of falsity), the court found that plaintiff hadn’t met its burden on the other elements of a Lanham Act claim, which it listed as (2) actual deception, (3) materiality, (4) defendant’s products traveled in interstate commerce, and (5) likely injury to plaintiff.

Perhaps the pleadings and affidavits were really bad; this is the only explanation I can think of for why this wasn’t an easy case for enjoining that one misrepresentation. As the court itself noted, in explicit falsity cases courts generally presume (2) and often (3) – and a good affidavit about the business environment should be enough to show for preliminary injunction purposes that purchasers care about whether an appraisal company has a large nationwide network to ensure that it can carry out any requested appraisal. As for (4), it would seem to be inherently part of the “nationwide network” claim that defendant’s services were offered in interstate commerce. Likely injury to plaintiff is the only plausible sticking point, depending on the structure of the industry.

Lesson: Even apparent slam dunks can bounce off the rim on occasion. (The other claims, which the court found even less impressive, may also have influenced the court’s attitude on this one – if the plaintiffs couldn’t provide evidence of trade secret theft and the like, the court may have been in a skeptical mood by the time it arrived at the Lanham Act claim.)

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