Monday, June 02, 2008

False comparative and credential claims enjoined

Healthport Corp. v. Tanita Corp. of America, 2008 WL 2224398 (D.Or.))

Healthport sued Tanita for patent infringement related to the parties’ competing body composition monitors. Tanita counterclaimed for false advertising. After the court granted Tanita summary judgment on the patent claims, the parties cross-moved for summary judgment on the Lanham Act and state unfair competition counterclaims.

Healthport has two public web sites, one targeting healthcare professionals and one targeting employers and healthcare benefits providers. Both describe ELG, which is Healthport’s metabolic analyzer (a body composition monitor). Healthport claimed that the ELG was “the only metabolic analyzer patented in the United States and abroad for unequaled accuracy and validity in the prediction of human body composition,” whose “patented accuracy” was “backed by the largest study on body composition analyzers ever conducted, including more than 750 subjects from a wide demographic population.” Healthport relied on two studies by USC, though neither was a head-to-head study. Neither study found “unequaled” accuracy, just accuracy. Healthport also owns two patents for the ELG, but neither patent suggests anything about comparative accuracy or validity.

In addition, the websites offer information about Healthport’s management team, including Richard Wooten, Healthport’s president and chief technology officer. The sites said that Wooten “received his M.S. degree from Oregon Graduate School of Health Sciences and a B.S. in Biology from Portland State University.” This is not true, as Wooten has no college or graduate degrees.

Healthport challenged Tanita’s standing. In the 9th Circuit, Lanham Act false advertising standing requires a commercial injury that is competitive—that could cause sales diversion. But Healthport’s own witnesses testified that the parties were competitors. Healthport also argued that it derived no revenue from the healthcare plan detailed on its websites, so Tanita suffered no competitive injury. But Tanita wasn’t challenging the healthcare plan; it was attacking statements about the ELG and Wooten. The ELG statements were inherently comparative and could divert business from Tanita, which also sells body composition monitors.

Healthport then argued that its website wasn’t “commercial advertising or promotion.” But the sites are commercial speech; the parties compete; they exist to sell health-related services; and they’re accessible to the public. That’s commercial advertising under the Lanham Act.

The court found that the Wooten credential statements were literally false. As for the ELG statements, there were three possible interpretations of the “only patented/unequaled accuracy” statement, but each was literally false. (1) It’s literally false to say that the ELG is the only patented metabolic analyzer. (2) It’s literally false to claim that the ELG is patented for unequaled accuracy and validity, or that it’s the only analyzer so patented. (3) It’s unsubstantiated to say that the ELG is unsurpassed in accuracy and validity when compared to other body composition analyzers, and lack of substantiation for a “tests prove” claim is treated like literal falsity.

Healthport argued that Tanita needed to show actual deception through consumer surveys or market research. The court disagreed. Courts may presume deception and reliance in cases of intentional false statements, even if there’s little overt reference to a competitor’s product. For online advertising, where an advertiser need not spend substantial funds to reach a wide audience, there’s no need to show substantial investment in a claim before presuming deception and reliance. Independently, non-comparative false statements can justify injunctive relief if they’re material.

The ELG statements were material. Tanita provided evidence from health professionals who testified that they seek the most accurate equipment and that claims of superior accuracy or patented accuracy would influence their buying decisions. Wooten’s credentials were a closer issue, but Healthport’s co-founder testified that his advanced medical degree is important to Healthport customers. This was sufficient for an injunction.

Tanita overreached, however, in requesting corrective advertising, disgorgement of profits, and attorneys’ fees.

Profits can be awarded even if there’s no proof the advertiser’s conduct was willful—lost profits serve as a surrogate for damages. In comparative advertising cases, courts can presume injury because the benefit to one advertiser necessarily harmed the other. Without a direct comparison, however, the plaintiff must show evidence of injury. Or the plaintiff can recover defendant’s profits under an unjust enrichment theory, at a court’s discretion; a willful violation can support an award of profits, but doesn’t require one. Here, the court determined that an award was inappropriate; there was no evidence that Healthport profited from its false claims.

Tanita requested an order of corrective advertising on all Healthport websites and by way of notice to all of Healthport’s clients. But there was no evidence that a large audience actually saw the sites or that consumers were actually deceived. Thus, no corrective advertising was necessary.

Attorneys’ fees are available in exceptional Lanham Act cases, including cases of willful, fraudulent, or deliberate deception. Intentional acts are insufficient; there must be deliberate intent to deceive consumers. Because Healthport’s liability rested on a presumption of consumer deception and reliance, and because the intentionally false statement about Wooton’s credentials was only marginally material, the court found a fee award unjustified.

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