It's a dirty job, but there's competition to do it

Alexander Mill Servs., LLC v. Bearing Distributors, Inc., 2007 WL 2907174 (W.D. Pa.)

Plaintiff AMS entered into a contract with defendant BDI to de-liquefy industrial sludge at a job site in Ohio. Relying on BDI’s expert advice, AMS agreed to buy a centrifuge based on the understanding that it would be fit for AMS’s specific purpose, including minimal down time, stated contract price, and BDI’s ability to provide a complete solution to the de-liquifeying problem. The centrifuge did not perform as desired. Twice more, BDI proposed another solution; under financial pressure, AMS agreed, but the second and third centrifuges were no better, leaving AMS over $225,000 poorer than after the first was installed and out $371,000 total.

AMS alleged false advertising in BDI’s claims that they were experts in the field, offered complete solutions, and could perform the job properly. AMS also alleged that it planned to compete with BDI by taking the complete package, learning from it, improving it, and entering the market for de-liquefying material from foundries and steel mills, and that it still planned to do so regardless of the outcome of this lawsuit. AMS’s sister companies had used similar approaches to enter new markets for years.

The court rejected plaintiff’s theory that it had Lanham Act standing because it was poised to compete with defendant. The Third Circuit’s prudential standing test requires consideration of (1) whether the plaintiff’s injury was of the type Congress sought to redress in the Lanham Act; (2) the directness of the injury; (3) the proximity of the plaintiff to the injurious conduct; (4) the speculativeness of damages; and (5) the risk of duplicative damages or complex damage apportionment. The court found that plaintiff’s injury here was not from its inability to compete for customers, but from its status as a consumer. Regardless of plaintiff’s intent to “usurp defendants’ technology and expertise and pass it off as its own” (not, by the way, conduct that’s actionable passing off under Dastar unless they planned to pass off actual machines), it hadn’t yet entered the market and thus could have no business diverted from it. This meant all the factors tilted against it. In particular, damages were extremely speculative; plaintiff alleged that its share of the niche market could be estimated using various factors, but its lack of a proven track record meant that any damages would have to be extrapolated from defendants’ own data.

Likewise, plaintiff couldn’t maintain state-law deceptive trade practices claims. It wasn’t a consumer of the type protected by Pennsylvania laws – a purchaser primarily for “personal, family or household purposes.” It argued that Ohio law applied, but failed to explain why conflict of laws analysis produced that outcome; anyway, Ohio law is substantially similar to § 43(a), so plaintiff had no standing. In addition, plaintiff’s fraud and misrepresentation claims were barred by the “gist of the action” doctrine, since they were essentially reiterations of its contract claim.