Aristotle sued NGP for violating the Lanham Act by claiming that, as a campaign software provider, it worked only with Democrats and their allies, whereas in fact, by agreement with Capitol Advantage, it also sells software to Republican-leaning entities. NGP counterclaimed that Aristotle violated the Lanham Act with false and misleading comparative ads.
Aristotle sells campaign fundraising and compliance software to federal and state political candidates, party committees, and other organizations. It sells to Democratic and Republican entities. Unlike Aristotle, NGP has “always marketed itself as a partisan firm, stating on its website that ‘NGP seeks to be a responsible, dedicated partner to our clients, working toward our common goal: Victorious Democrats.’” Other statements include, “People use NGP because ... they TRUST us--we are PARTISAN and work only with Democrats and their allies.” NGP has never sold its products directly to a Republican federal or state candidate or party committee.
However, Capitol Advantage, a nonpartisan campaign firm looking to enter the software market, entered into a partnership/reseller agreement with NGP in 2004. NGP gave Capitol Advantage the exclusive right to sell the software under its own private label, PACBuilder, to “corporations, trade associations, and right-leaning 527 nonprofit organizations.” NGP has a degree of approval over contracts with prospective PACBuilder purchasers/sub-licensees, though the agreement also states that PACBuilder customers are “exclusive customers” of Capitol Advantage, which manages all customer service. NGP receives per-customer royalties that make up 1-2% of NGP’s revenue.
The court denied both parties’ summary judgment motions. Although NGP clearly works with Capitol Advantage, Aristotle didn’t show that Capitol Advantage was not a Democratic “ally.” Instead, Aristotle argued that allowing a licensee to market to a particular sort of client constituted “working with” those clients, and that Capitol Advantage has right-leaning clients that are not Democratic allies. NGP argued that the PACs about which Aristotle complained were considered neither Democrats nor Republicans. Moreover, though some of Capitol Advantage’s clients contribute to right-leaning candidates and entities, NGP argued that it neither works with or serves Capitol Advantage clients. Furthermore, NGP contended that Capitol Advantage is a Democratic ally in that its clients collectively gave more money to Democrats than to Republicans during the last election cycle, 54% v. 45% federally. Capitol Advantage backed away from a sale to a Republican entity when NGP expressed discomfort, and no sales have been made to right-leaning 527s.
NGP’s ads don’t define “allies,” and there’s a dispute over whether PACs may simultaneously be allies of both Democrats and Republicans. “Reasonable consumers may come to different conclusions regarding the extent to which ‘Democrats and their allies’ is mutually exclusive with other politically-defined categories, and within which circle(s) ‘non-partisan PACs’ or Capitol Advantage fall. Moreover, Aristotle didn’t show that NGP had any direct relationship with right-leaning Capitol Advantage clients.
As a result, Aristotle didn’t establish literal falsity, but it did raise a triable issue on misleadingness. Aristotle argued that it could substitute evidence of intentional deception for evidence of consumer reaction. The court held that direct evidence of intent could so substitute, but such extrinsic evidence was not present.
The parties also disputed materiality. Aristotle relied on deposition testimony from NGP employees that clients and prospects sometimes mention that “they like the fact that NGP works with Democrats, that some clients may feel more at ease working with an openly partisan vendor, and that partisanship can be a factor in someone selecting NGP.” Articles and consumer guides also opine that partisanship influences consumers. But in Aristotle’s surveys, no customer identified partisanship as a “primary reason” for not choosing Aristotle, nor did any customer include partisanship as an “important factor” in choosing a software vendor. Instead, customers cited “cost, customer support, and software capability” as the most important factors. NGP spun its decision to work only with Democrats “as a measure intended to motivate employees rather than sway potential customers.”
The court reasoned that “NGP’s partisan focus, as well its assertions concerning harm seem inconsistent with its contention that the alleged misrepresentations are not material.” Indeed, NGP argued that precluding it from stating that it’s a Democratic, partisan firm “would clearly have an enormously adverse impact....” Given the conflicting evidence, materiality was another triable issue.
Likewise with injury. Aristotle’s evidence of harm was only anecdotal and circumstantial, but a reasonable factfinder could find a sufficient likelihood of injury.
On to the counterclaim: NGP alleged that Aristotle had engaged in a smear campaign. The allegedly false/misleading claims (1) suggested that NGP does not work only for Democrats and their allies, (2) indicated that multiple users were switching from NGP to Aristotle, and (3) compared Aristotle’s and NGP’s products and services. The court found disputed material facts.
In the Feb. 2007 issue of Campaigns and Elections, an Aristotle ad claimed that, based on FEC filings, Democratic and Republican campaigns using Aristotle raised an average of $166,105.37 more than those using NGP software. NGP argued that this was a false comparison, and that apples-to-apples comparison would reveal an NGP advantage. The court found possible merit in NGP’s methodology, but not a decisive showing of falsehood. A bar chart in the ad, Aristotle admitted, showed the wrong disparity, and Aristotle promised to refrain from using the chart without accurate and cited numbers, so the matter was moot as to injunctive relief (though relevant to NGP’s unclean hands defense).
Another ad stated “The Only Other Way to Raise as Much Money Could Land You In Jail.” It continued, “... you can have peace of mind knowing that only Aristotle guarantees your donations are processed and reported in a manner that is 100% FEC and state compliant.” The ad then linked to an FEC advisory opinion responding to an NGP request to “upgrade” its software by allowing users to access information about contributions by clients’ donors to other political committees. Short answer: the FEC thought this would violate the Federal Election Campaign Act and FEC regulations. While the opinion letter didn’t say that violation of FECA would be a criminal offense, some willful violations of FECA are punishable by imprisonment. Nor did NGP allege that Aristotle’s statement about its processing and reporting guarantee was untrue at the time it was published. So, the ad wasn’t literally false or even misleading, but it might be relevant to show the context at trial. (I assume the context of vigorous/vitriolic competition.) Likewise, NGP attacked an Aristotle website, “Software Enquirer: Is English a Second Language for Software Robin Hood?” The webpage speculated that “NGP made a little deal with another company on the side to sell NGP software to grounds that may be a lot more friendly to the right than the left.” Again, this was neither false nor misleading, but could be relevant in context.
NGP also brought claims based on a marketing document published shortly before the 2006 congressional elections comparing the competing programs’ features. The ad said NGP provides “[n]o instruction manuals.” NGP does have an online manual, whereas Aristotle provides a “professionally printed and indexed manual.” Aristotle also pointed to a complaint from a customer survey supporting its interpretation of “manual.” The issue of whether the claim was false or misleading in context was a triable issue of fact. Likewise, there was a triable issue on whether the pricing for the software was “approximately the same.”
NGP also reached back to a 2004 ad, alleging that a quote attributed to a “Former NGP User” was false, that the ad’s claims of “Faster Support” and “Smarter Support” were misleading, and that the statement “Only Aristotle employs FEC Compliance Experts who have worked at the FEC” was false because it does so as well.
The court found that Aristotle’s arguments about the quotation and “Faster Support” claim were unworthy of discussion, so I don’t know what they were. But NGP didn’t allege that, at the time the ad ran, it employed FEC Compliance Experts who’d worked at the FEC, and there was no allegation that Aristotle had made a similar claim since 2004. Moreover, though anonymous quotations and the ad’s characterization of NGP’s request for an advisory opinion from the FEC as a proposed “scheme” was “less-than-laudable marketing behavior,” the parties are dealing with sophisticated consumers in a specialized market, and the court didn’t find anything in the ad false or misleading. Again, the ad might be relevant contextual evidence.
In terms of deception and materiality, NGP argued that suggesting that a campaign acts at its peril by using NGP software necessarily affects consumers. Aristotle replied that the customers are sophsiticated. With respect to the claims whose alleged falsity survived, the court found triable issues on likely deception and materiality.
On injury, NGP argued that the court could presume harm from a showing of literally false comparative ads mentioning it by name. But that was the standard for demonstrating irreparable harm for a preliminary injunction, not the standard for a permanent injunction. Some circuits apply a presumption of irreparable harm in this context, but there was no in-circuit authority here. Moreover, NGP hadn’t shown literal falsity, even though the ads were directly comparative. (I can’t see that this should matter. If the idea is that falsity + negative comparison can be presumed harmful, proof of misleadingness substitutes for falsity; if you show that, the direct negative comparison is what justifies the further inference that the arrow hit its target.) Still, there was enough to go to a factfinder.
Unclean hands: this defense requires improper conduct with respect to the same product or service alleged to be affected by the other side’s false ad, a requirement satisfied here. The defense fails where the public has its own interest in suppressing falsehood: “where it would be contrary to the public interest, turnabout is not fair play.” Wary of harm to the consuming public, and “mindful of the public interest in the integrity of political campaigns and elections,” the court declined to apply the doctrine at this time, but allowed it to go on to the factfinder.
No comments:
Post a Comment