Monday, January 04, 2010

Iqbal no barrier to standard false advertising claim

Gates Corp. v. Dorman Products, Inc., 2009 WL 5126556 (D. Colo.)

This case is pretty straight down the center of Lanham Act false advertising cases, which makes it a useful data point for assessing how Iqbal is starting to play out: courts are likely to find certain inferences inherently plausible, as here.

Gates makes auto products, and for over 25 years has been making automatic belt tensioners for original equipment manufacturers (OEMs) and for the aftermarket. (A belt tensioner helps maintain proper operation of subsystems that get rotary power from the engine crankshaft.) Gate alleged that Dorman’s ads and marketing materials claimed that its belt tensioners “[Meet] All SAE Specifications.” SAE is a standards development organization for the engineering of powered vehicles of all kinds. Gates alleged that it’s important for an auto component maker to be able to make this claim. Gates further alleged, however, that this claim was false and misleading. According to its own tests, a substantial number of Dorman’s tensioners failed SAE’s “Snap Test.” (SAE also specifies test procedures and criteria addressing known failure modes for mechanical rotary tensioners.)

Dorman also allegedly uses the trademark “OE Solutions” and terms like “OE Quality” and “OE Performance” in its marketing. OE is a well-known acronym for “original equipment,” which is important because standards set by carmakers for OE equipment are often higher than aftermarket standards. Gates alleged that this is false and misleading because Dorman doesn’t make OE belt tensioners, either for OEMs or for the aftermarket.

Gates alleged false advertising under the Lanham Act, deceptive trade practices under the Colorado consumer protection statute, and common-law unfair competition. Dorman moved to dismiss, arguing that Rule 9(b)’s heightened pleading standard should apply. The court refused to decide that issue because it wouldn’t have changed the result.

The court found that Gates had properly pled its Lanham Act claims. Among other things, it included representative ads as part of its allegations, showing that the claims had been made, and it alleged facts sufficient to show falsity/misleadingness. It’s reasonable to assume that product quality influences purchase decisions, and thus the facts alleged also supported materiality. Literal falsity doesn’t require further proof of consumer deception; misleadingness plus materiality can also make likely deception plausible. “Plaintiff here cannot be expected to present detailed evidence in its Complaint on the nuances of consumer confusion, such as survey evidence, when [the Lanham Act] only requires a ‘tendency to deceive.’" Discovery is the place for exploration of the evidence. Likewise, in alleging harm, Gates rested on the fact of direct competition. At this stage, it need not prove lost customers, only likely harm, and given direct competition, it’s plausible—following Iqbal—that Gates would be harmed by Dorman’s exaggerations about product quality.

Likewise, Gates properly pled its state-law statutory claims, which included the additional element of intent not to sell the product as advertised and an allegation of willfulness, for which the court presumed Gates had a good-faith basis. The allegations were sufficiently particular to meet Rule 9(b)’s requirements.

The common-law unfair competition, however, failed. In Colorado, this tort reaches only trademark-like harms from using or copying a plaintiff’s products or services and deceiving or confusing the public as to the source of the business in question.

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