Wednesday, September 02, 2009

Red and green lights for traffic false advertising claims

American Traffic Solutions, Inc. v. Redflex Traffic Systems, Inc., 2009 WL 2714017 (D. Ariz.)

The parties compete to sell and operate traffic enforcement cameras. Redflex won two contracts from the Arizona Department of Public Safety in 2007 and 2008 for speed enforcement. The radar units used in speed photo enforcement devices must be FCC-authorized, and mobile units may also be certified by the International Association of Chiefs of Police. Redflex conceded that, for a time, its units were not FCC-authorized or IACP-certified.

ATS sued Redflex for false advertising and related claims; Redflex moved to dismiss the Lanham Act claims based on statements in its DPS bid proposals and one of its principal’s statement that “using uncertified radar units was an honest mistake.”

The court found that ATS had adequately alleged that false statements were present in the bid proposals, which stated that Redflex would provide “IACP approved speed enforcement solutions,” and use “full IACP certified speed measurement devices.”

Redflex also argued that Lanham Act claims couldn’t be based on pictures of equipment in the bids because the pictures didn’t make any statements, but the court disagreed. A Lanham Act claim can be based on any “word, term, name, symbol, or device.” Ontological neutrality rears its head in the false advertising context! Anyway, Lanham Act claims can be based on implied falsity, and the pictures may have implied to DPS that these would be the actual products they’d receive. (You think? I might even go with necessary implication, though there’s still a question of materiality.) Redflex argued that the bids didn’t represent the specific equipment they’d use because they were bidding to provide a service, not a product, and thus the actual equipment used was immaterial. But even though DPS wasn’t buying the units, it may have wanted to ensure that the devices used for its programs were IACP-certified and complied with relevant regulations.

Redflex did better with Karen Finley’s statement to a newspaper that “using uncertified radar units was an ‘honest mistake.’” Unfortunately, the court did not rely on the most sensible argument—that this wasn’t a statement in commercial advertising or promotion—but instead held that there was no misleading description of Redflex’s products. This, after quoting the prohibition on misstatements covering “commercial activities.” As trade libel law has long recognized, statements about the honesty of a business can be false and material to consumers, and Lanham Act courts have specifically used the “commercial activities” language to cover this type of statement.

The court went on to say that “[w]hether using uncertified products was an ‘honest mistake,’ is not a representation of fact upon which consumer reliance would be induced.” This is both inconsistent with my sense (bolstered by my reading in marketing literature) that consumers do care about whether mistakes are honest, negligent, or intentional and also at least contestable enough to be inappropriate for a motion to dismiss. The case it cited spoke of needing “specific rather than general assertions” to found a Lanham Act claim, but “honest mistake” is plenty specific given the context. Bottom line: would a reasonable consumer care about whether its supplier knowingly misrepresented its equipment certifications and only fixed the problem when it was caught or just made an honest mistake that was quickly corrected? Right result, very wrong reason.

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