Friday, September 19, 2008

A somewhat confusing false advertising ruling

ACE American Ins. Co. v. Wachovia Ins. Agency Inc., 2008 WL 4165746 (D.N.J.)

ACE contracted with WIA’s predecessor to be the exclusive writer of policies on certain E-Risk (electronic risk) business insurance sold by WIA. In 2008, Wachovia became interested in selling WIA, but declined ACE’s offer to purchase WIA and then provisionally accepted an offer by WIA’s management to purchase WIA.

ACE then discovered that Scottsdale, another insurance company, had filed various forms with state insurance agencies that were substantially the same as ACE’s forms and used trademarks associated with Ace’s E-Risk program. Allegedly, the forms were based on confidential information, and ACE contended that WIA violated its agreement with ACE by providing confidential information to Scottsdale as part of a WIA-Scottsdale business arrangement. ACE sued, alleging among other things that Scottsdale engaged in tortious interference with contract, trade secret misappropriation, and false advertising.

The court found that ACE had shown a likelihood of success on the breach of contract claim against WIA, but not on its trade secret claim or tortious interference claims against Scottsdale, because though the forms Scottsdale submitted were very similar to ACE’s forms, there wasn’t sufficient evidence that Scottsdale knew it was “in receipt of a betrayed confidence.” It expressly referenced an ACE company in its filings, disclosing the source of its information, which I presume suggests to the court that there was no attempt to conceal guilty knowledge.

Similarly, the court rejected the false advertising claim on this record. The allegedly false advertising was Scottsdale’s website, email address containing the phrase “ERiskServices,” and use of certain marks allegedly belonging to WIA on insurance filings and on its website. ACE alleged that this would lead consumers to believe that E-Risk insurance is provided by Scottsdale and not ACE. (Note: this sounds much more like TM infringement than general false advertising; also, E-Risk seems like a highly descriptive mark at best.) However, the court found that ACE’s other allegations proved to much: WIA intends to sell its assets to WIA’s current management, terminating the agreement with ACE. If the sale went forward, other insurance companies could provide the relevant business insurance. ACE also asked the court to infer that Scottsdale would be the partner of WIA’s successor. Thus, the ads in question “would simply have been disseminated in the reasonable expectation of entering a market currently occupied by a competitor, and not false or misleading.” (I am not sure I get this. Whose mark is E-Risk? Or is E-Risk even a mark? There doesn't seem to be a registration for it. If it’s ACE’s protectable mark for these services, then WIA’s ability to offer the same services doesn’t translate into an automatic entitlement to use the mark.) Anyway, the court found that Scottsdale was not attempting to confuse the marketplace about an officially licensed product, and there was no showing of likely consumer confusion.

Here, a trademark analysis would have helped the plaintiff, since trademark doesn't make false advertising's explicitly false/misleading distinction. Though perhaps it should!

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