Thursday, January 21, 2010

Department of Justice, false advertiser?

Trusted Integration, Inc. v. United States, --- F. Supp. 2d ---, 2010 WL 174143 (D.D.C.)

A false advertising claim against the US caught my interest here. In 2002, Congress passed the Federal Information Security Management Act (FISMA), requiring the National Institute of Standards and Technology to “set standards and best practices for information security at federal agencies, and agencies must meet security standards and conduct annual, independent evaluations of their information security.”

According to the complaint: Plaintiff makes TrustedAgent, software that automates compliance with FISMA. The Department of Justice bought a license to use TrustedAgent in 2004, after using it for about seven months. DoJ also used another proprietary program that certified and accredited users of its information systems. Together, these programs were the DoJ’s “FISMA solution,” known as “Cyber Security Assessment Management” (CSAM). (Boy, we do love our acronyms.)

In 2006, OMB told federal agencies it was planning to evaluate their FISMA compliance and designate Centers of Excellence. Agencies not so designated would be required to purchase a FISMA solution from one of the Centers. Plaintiff and the DoJ agreed to submit CSAM. DoJ’s proposal said that TrustedAgent was part of CSAM and that plaintiff’s staff would provide technical services. DoJ demonstrated TrustedAgent as part of its proposal. In 2007, OMB selected DoJ as one of two Centers of Excellence. After that, DoJ demonstrated CSAM to potential customers, suggesting that TrustedAgent was a “key component” of FISMA.

Plaintiff alleged that, by late 2006, DoJ was already developing an alternative to TrustedAgent to increase its revenue. It didn’t submit the new program in its OMB proposal because it hadn’t yet been successfully used, but in March 2007, after selection, it announced it had completed the replacement, and began including the new program as part of the FISMA solution sold to other agencies. It also made disparaging comments about TrustedAgent to various potential customers, and in April 2007 it dumped plaintiff.

Plaintiff sued for violations of the Lanham Act, common law unfair competition/disparagement/false advertising, and violation of fiduciary duty. The Federal Tort Claims Act broadly waives sovereign immunity for tort claims, but not for “[a]ny claim arising out of ... libel, slander, misrepresentation, deceit, or interference with contract rights[.]” 28 U.S.C. § 2680(h). In addition, district courts lack jurisdiction over contract claims over $10,000, which have to go to the Court fo Federal Claims.

Though the court’s opinion is a little wobbly on whether this is fundamentally a trademark or a false advertising claim, the Lanham Act claim focused on false designation of origin—a false claim likely to cause confusion about the relationship between DoJ and plaintiff, the origin/sponsorship/approval of the DoJ’s product, and the nature/characteristics/quality of its FISMA solution. The US argued that this was essentially a contract claim and thus barred. But the rights on which plaintiff based its claim were not based in contract. And the US has waived sovereign immunity for Lanham Act claims.

The US argued that DoJ never referred to its own product as TrustedAgent, but that doesn’t exhaust the possibilities of false designation of origin. Attributing plaintiff’s name to the work of another can be an actionable misrepresentation. Here, DoJ allegedly falsely suggested that TrustedAgent would be a “key component” of DoJ’s solution. The US also argued that the DoJ’s acts didn’t occur “in commerce,” because DoJ is a federal agency and not a commercial undertaking. But the Lanham Act’s reach isn’t limited to commercial entities. DoJ allegedly actively promoted and sold CSAM to various agencies.

Injury was properly alleged because “defendant falsely and deceptively advertised a product it was selling to plaintiff's potential customers.” I wonder about this. Under the OMB’s rules as the court’s summary of the complaint gives them, plaintiff can’t compete for the business of other agencies, because only agencies and not private businesses can be Centers of Excellence from whom other agencies are required to buy. So plaintiff might have been harmed, but was it harmed by any misrepresentation?

(Note that the Lanham Act claim survives even though the court speaks in terms of misrepresentation, which is arguably inconsistent with the resolution of the unfair competition claim, discussed next.)

The unfair competition claim was that DoJ misled customers into thinking that TrustedAgent would be part of its FISMA solution and that DoJ disparaged TrustedAgent (presumably thereafter). The US argued that this was either a contract or a libel/misrepresentation-type claim. The court again found that the alleged violations were tort claims that didn’t depend on contract rights. But the libel exclusion applies where reliance on government misstatements or misinformation is essential to the plaintiff’s claim. This was the situation here: the alleged unfair competition was “essentially a claim for misrepresentation.”

Plaintiff argued that misrepresentation wasn’t the actual basis for the claim because the US’s liability comes from dropping TrustedAgent from its FISMA solution and interfering with plaintiff’s access to customers. But this would be “unfair” only because of DoJ’s prior representations. Plaintiff didn’t suffer damages merely because of the replacement program. Rather, it was damaged because of alleged negligent misrepresentation.

Finally, the breach of fiduciary duty claim here sounded essentially in contract and therefore also had to be dismissed.


Anonymous said...

So did the plaintiff win or lose in the Court of Appeals?

RT said...

It's not the court of appeals, but: the Lanham Act claim survived insofar as it alleged that DoJ falsely claimed a connection between plaintiff and the DoJ's product. Why this isn't a "misrepresentation" and thus treated like the more general unfair competition claim is, I agree, a little unclear. I'm going to edit the post to be more clear at least in the description!