The awful truth: "degrading" but true statements ok

Goldic Technology, Inc. v. Maxmile Corp., 2008 WL 5096866 (Cal.App. 2 Dist.)

Here’s a quirky little case: Goldic sued Maxmile for, among other things, breach of a settlement agreement that barred communications that “defame, libel, slander or degrade” Goldic’s products, based on a flyer that contined “true but unflattering” statements about Goldic’s products. The trial court ruled that truth did not degrade; Goldic appealed.

The parties compete to sell electronic Chinese/English dictionaries. Goldic sued a bunch of defendants, including Maxmile, in 1997; in 1999 the parties settled. Their agreement contained the language quoted above.

In 2005, Goldic introduced a new electronic dictionary. Maxmile distributed a Chinese-language flyer in its stores saying that Goldic’s new product “Makes Mistakes in its own Example Sentences!” The flyer listed 12 examples, and went on: “Erroneous machine translation, misleading the children, misleading other people and hurting business!” It concluded: “Please note that [Goldic] does not guarantee the accuracy of translation, and it specifies that the manufacturer shall not be held responsible for ‘any and all disputes or legal responsibilities’ resulted [sic] from the result of translation!”

The trial court entered a preliminary injunction, ruling that these statements, even if true, could reasonably be interpreted as degrading in violation of the contract; any harm to Maxmile’s freedom speech came from a voluntarily incurred obligation. At trial, the only remaining cause of action was breach of contract, and the parties agreed to have a bench trial on contract interpretation.

At trial, Maxmile’s principal testifed that “erroneous machine translation,” “the machine will also mislead the children,” and “the machine will mislead people,” were his opinions. Goldic’s president testified that the alleged erroneous translations were accurately reported, and he notified his software company of the problems.

After trial, the court found that the contract was not ambiguous, and that “degrade” did not cover true statements. The evidence established that Maxmile’s statements were accurate; there were only two competitors in the Chinese electronic dictionary market; and that Goldic’s own ads touting its products’ advantages could be interpreted as drawing unflattering comparisons with Maxmile, and thus would violate the settlement agreement under Goldic’s definition. The court found it significant that the original cause of action was based on false statements. Thus, it ruled that the parties had not intended to make “degrade” cover truth.

The court of appeals agreed. The parties provided guidance to their intentions by incorporating Goldic’s allegations of false advertising into the settlement agreement. This context trumped the dictionary meaning of “degrade.”

Comment: this is why lawyers like to use terms that have hardened into concrete over time, even if it leaves us with a lot of meaningless leftovers.