Rule 11 sanctions for meritless false advertising claim

Ideal Instruments, Inc. v. Rivard Instruments, Inc., --- F.Supp.2d ----, 2007 WL 1953147 (N.D. Iowa)

In a rare ruling, the court sanctioned a party for seeking a preliminary injunction against a competitor’s alleged false advertising, which concerned claims that its needles for injecting livestock were “detectable” (necessary for keeping the needles or parts out of the food supply). Rivard began with an expert report that 55% of Ideal’s needles failed a detectability test, and the court found it “just barely possible” that Rivard and its lawyers could have believed that their preliminary injunction motion had merit. But they then “shirked their responsibilities to conduct a reasonable investigation of or inquiry about” the expert’s test results, which were later determined to have “no probative value whatever” for determining detectability in industry conditions. The flaws in the expert’s report should have been “readily apparent on any reasonable examination or inquiry.” Moreover, Rivard shirked its duty to conduct a continuing inquiry into the grounds for its motion, even after the expert was deposed and conducted further tests. Thus, the lawyers’ reliance on the expert’s testimony was not objectively reasonable.

Independently, Rivard had enough experience in the industry that it should have recognized the flaws in the expert’s methods: “Rivard was sufficiently sophisticated in the manufacture and testing of ‘detectable’ needles to recognize the flaws in [the expert’s] evidence, even without an intermediary attorney to advise Rivard of the legal implications of the evidence…. The record demonstrates an unwarranted eagerness by Rivard and its attorneys to seize upon flimsy evidence, the insufficiency of which should have been obvious, as the basis for a demand for sweeping injunctive relief that would have devastated Ideal’s detectable needle business. Such conduct is sanctionable.” I’m not terribly familiar with Rule 11 law, but the court’s analysis raises a relevant concern in most Lanham Act false advertising cases, which of course are brought by competitors who should be familiar with the industry. Lawyers will often have to rely on experts of various stripes in Lanham Act cases, and that affects whether their representations to the court are reasonable. But their clients have independent responsibilities to evaluate expert reports in their fields (matters relating to the reliability of reception surveys will rarely overlap with a client’s substantive expertise).

The sanction awarded was Ideal’s reasonable attorneys’ fees and expenses during the period in which Rivard relied solely on its expert report, and half thereafter (when Rivard added to its proof a metallurgical report that, though it did not in the end justify an injunction, was not so flawed as to be sanctionable). The sanction was imposed jointly on Rivard and its attorneys.