Monday, October 15, 2007

False advertising about advertising

Insignia Sys., Inc. v. News America Marketing In-Store, Inc., 2007 WL 2893374 (D. Minn.)

Insignia and News America (NAMI) compete in the in-store advertising market. Each buys advertising space from retailers, such as defendant Albertson’s Inc., and sells advertising services to product manufacturers. NAMI is the market leader, in part because of its exclusive contracts with many retailers. Insignia alleged that NAMI’s exclusive contracts with retailers violate antitrust laws; NAMI counterclaimed for wrongful inducement to breach contracts and for disparagement under the Lanham Act and state statutory and common law (libel and slander). Among the statements to which NAMI objected were statements in a quarterly results conference call that NAMI engages in illegal conduct and in a February 2006 letter to packaged good companies that NAMI “is on a mission to destroy competition,” “appears to be getting even more aggressive in its sales tactics,” and “continues to try to destroy in-store competition.”

Insignia argued that these were nonactionable statements of opinion. The court looked at four factors to distinguish fact from opinion: (a) precision and specificity, (b) verifiability (what I call falsifiability, which is the most important factor), (c) the social and literary context in which the statement was made, and (d) the public context. The court noted that cases dealing with statements about the legality of another party’s conduct have not been terrifically consistent. One important factor is whether the legality has already been decided or is “otherwise known” to the speaker. If the speaker is only opining on unsettled areas of the law, her statement is opinion. Given the standard on a motion to dismiss, the court determined that the statements could be factual.

Insignia then argued that it possessed relevant privileges and that the Noerr-Pennington doctrine protected its conduct. Absolute privilege is a defense to defamation; the court noted uncertainty about whether it applies to the Lanham Act, though it pointed to the Restatement (Second) of Torts § 635, cmt. A, which states that the privilege applies to the law of “commercial disparagement.” In any event, the privilege applies to statements made (1) preliminary to a proposed judicial proceeding, or as part of a judicial proceeding that (2) have “some relation” to the proceeding. The privilege encourages participation in judicial proceedings and furthers the search for truth. But these statements were not made to a judicial officer or to another party, but to the customers for whom the parties were competing; customers have only an indirect interest in the outcome of the case, insufficient for the privilege to apply. For much the same reason, the Noerr-Pennington doctrine, which covers activities incidental to petitioning the government or seeking legislation, did not apply.

Comment: when the 1988 amendments to the Lanham Act confirmed that §43(a)(1)(B) applied to statements about a competitor’s goods or services (and rejected a contrary rule adopted by some circuits), there was a flurry of law review commentary asking whether the traditional state-law disparagement tort would disappear, or whether its high fault/malice/damages standards would be imported into the Lanham Act. Precisely because the standards for business disparagement were already so high, they hadn’t been constitutionalized post-NYT v. Sullivan (which basically adopted for defamation of public officials the standards that already applied to business disparagement), so there was no real First Amendment discourse around them. Perhaps this made it easier for courts to apply Lanham Act strict liability to false advertising regardless of whether a statement was about the speaker’s own products or someone else’s. In any event, attempts to apply general First Amendment safeguards (of which Noerr-Pennington immunity is a species) to Lanham Act claims ordinarily fail; it is only when the free speech argument goes by way of the commercial speech doctrine that it seems to have any traction.

Back to the case at hand: Statements that NAMI’s contracts were unenforceable, that NAMI was violating antitrust law, and that NAMI didn’t meet its guaranteed level of service related to NAMI’s “commercial activities,” and also related to the quality and value of its services, so the Lanham Act/state law false advertising claims survived a motion to dismiss.

NAMI also alleged that Insignia persuaded retailers and packaged good companies that the exclusivity provisions in NAMI’s contracts were unenforceable, so that Insignia could place its products in stores simultaneously with NAM’s products. NAMI thus counterclaimed for deceptive acts and practice under New York and Massachusetts state law and other state torts.

Of interest: The court rejected Insignia’s arguments that, with respect to the New York claim, NAMI hadn’t identified the required consumer injury. On the latter, the counterclaim asserts that consumers suffered because Insignia’s conduct “resulted in fewer marketing choices and higher prices for goods.” I’m not sure this indirect consumer injury is what New York law requires – the allegedly actionable conduct was directed at sophisticated retailers, so the conduct itself doesn’t seem to have been consumer-oriented; couldn’t all deception of retailers be alleged to have bad ultimate effects on consumers?

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