The parties compete “for contracts with state and local governmental entities to provide photographic traffic enforcement service” using both competitive bidding and direct negotiations. They offer radar units, which are regulated by the FCC to prevent interference with radio frequencies. Some radar units need FCC certification before they may lawfully be operated. From 1999 through 2008, Redflex’s units required, but lacked, FCC certification.
ATS argued that Redflex knowingly failed to comply with FCC regulations and falsely advertised its services to obtain government contracts, misrepresenting its compliance with applicable laws and approval by the International Association of Chiefs of Police (IACP). Its standard contracts promised to comply with applicable laws; its proposals generally promoted its ability to use its systems legally, its compliance with applicable laws, and the lack of legal risk to entities using its services. Some proposals also promoted IACP certification; there was conflicting evidence over whether this implied FCC certification. Redflex promoted its uncertified radar units at six trade shows and issued press releases about recently awarded contracts without mentioning its noncompliance.
ATS didn’t pursue contracts with 23 of the 36 entities about which evidence was submitted. ATS decided not to submit proposals to 11, while 12 negotiated directly with Redflex. The court held that, though the parties are the two principal competitors in the feild, ATS lacked standing as to the 11 instances in which ATS didn’t pursue a contract. ATS argued that its decision was caused by Redflex’s conduct, with testimony from its executives asserting that they would have bid for those contracts had they known that Redflex lacked FCC-certified radar units. The court held, however, that this wasn’t a “causal connection” between Redflex’s conduct and ATS’s ability to compete. A plaintiff who “independently decides not to participate” in a market can’t show a discernibly competitive injury. (I’m not sure why, other than disbelieving the executives, one could conclude that there’s no causation. The testimony seems like a story about but-for causation. Perhaps there’s some thought that there’s daylight between Redflex’s allegedly false advertising with respect to FCC certification and ATS’s knowledge about the lack of certification, which could have been acquired in other ways than being exposed to (and being misled by) Redflex’s ads.)
The court rejected Redflex’s argument that ATS should have exhausted available administrative remedies for protesting bids before invoking the Lanham Act. ATS wasn’t contesting the validity of the contracts.
Next, the court limited ATS’s claims using “commercial advertising or promotion.” A reasonable trier of fact could conclude that disseminating contract proposals to eleven governmental entities was promotion in the industry. (Why so limited? The question is whether Redflex was engaging in commercial advertising or promotion. That question is answered by looking at the scope of Redflex’s promotions—even if it wasn’t in competition with ATS, it was still, from what I can tell, making the same claims to many more entities. Damages may be limited to those eleven, but that’s not the same thing.)
However, some statements weren’t made for the purpose of influencing a purchase. The terms of the executed contracts were therefore not advertising or promotion.
Redflex next argued that it didn’t make any specific claims about FCC certification or affirmative statements that its services complied with applicable laws. The actual language used in its proposals “includes repeated references to legality, compliance, and the absence of negative legal judgments and legal risk resulting from defendant’s services.” A reasonable factfinder could find these statements false.
Redflex contended that statements about compliance with applicable laws are just lay statements of legal opinions, not statements of fact. But if there is a clear and unambiguous rule, there can still be falsity. Likewise, Redflex’s statement about future compliance in one proposal was potentially actionable, because statements of future intent can be false in the absence of a good faith belief in their truth. There was conflicting evidence about what Redflex knew at the time it made the statement.
Likewise, there were triable issues about whether a photograph and statements promoting IACP certification were misleading, the photograph becaues it showed a unit that had once been FCC-certified (but apparently was so no longer).
The court further noted that “deliberately false or misleading statements are presumed deceptive” even in the absence of comparative advertising. (Actually, literally false statements are presumed deceptive, deliberate or not; as with the 5th Circuit’s ruling in Pizza Hut, the court is confusing materiality with deception, and the confusion produces a less sensible rule—literally false statements are presumed deceptive because people are presumed to believe things said flat-out to them, at least when those things are factual.) The court found a triable issue on the presumption of deception because there was evidence that Redflex sought FCC certification at the same time it claimed it was unaware of the relevant regulations. Redflex’s own evidence was that officials wouldn’t have allowed Redflex to use noncompliant equipment, which suggested that they believed Redflex intended to comply with applicable laws.
Then the court turned to materiality, rehashing the question whether deliberately deceptive statements are presumed material. The court answered no, not in the absence of comparative advertising. (Essentially, the court is moving the presumptions one up the chain. What is unclear about this result is what the court thinks the difference is between false and misleading claims. In the ordinary Lanham Act case, a plaintiff who shows falsity is not required to provide evidence of consumer perception/deception, whereas a plaintiff who alleges misleadingness is required to do so. If, as the court here apparently held, showing literal falsity does not excuse a showing of actual perception/deception in the absence of evidence of intent, then what purpose does the distinction between falsity and misleadingness serve?) Following the 1st Circuit, the court said it wouldn’t presume that consumers are influenced by immaterial statements whether or not they were made with deceptive intent. (Which isn’t quite the same thing—the question is whether we presume intentionally deceptive statements are material, not whether we presume that immaterial statements were material. Also, what exactly does it mean to have an intentionally deceptive immaterial statement? Are there a lot of those? E.g., “some celebrity you’ve never heard of likes this product,” except that’s not true?)
Anyway, ATS offered evidence that purchasers of photographic traffic enforcement services are particularly concerned about legal compliance, and evidence that Redflex jumped through expensive and time-consuming hoops to get certification, which was enough for a reasonable factfinder to find materiality. However, ATS didn’t have evidence that Redflex’s alleged statements in trade show displays and press releases would be material, because laws governing photographic traffic enforcement services vary widely from jurisdiction to jurisdiction. A governmental entity wouldn’t rely on the mere presence of radar units at a trade show or the announcement of a recently awarded contract as evidence that the offered services would comply with their applicable laws.
Redflex’s argument that, as an Arizona firm, its proposals to Arizona entities didn’t satisfy the Lanham Act’s jurisdictional element failed because of the obvious effect on interstate commerce. I mention it only because even making the argument is so surprising!
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