Monday, March 21, 2011

Nonnammed competitor has standing but still no luck against HP

Turbon International, Inc. v. Hewlett-Packard Co., --- F.Supp.2d ----, 2011 WL 924025 (S.D.N.Y.)

Turbon sued HP for misappropriation of trade secrets, unfair competition, and false advertising. Turbon acquires empty printer cartridges, including HP cartridges, refills them, and sells them. HP invited Turbon to meet at HP’s corporate HQ, at which time Turbon learned that HP planned to begin offering remanufactured cartridges to its customers and had identified Turbon as one of three potential suppliers of such cartridges. Their ultimate agreement was short-lived, however, and HP terminated its relationship with Turbon after a few months because it decided not to offer remanufactured cartridges to its customers. (For extensive reporting on the trade secret aspects and the relevance to the remanufacturing industry in general, see this article.)

HP subsequently ran ads to discourage the purchase of aftermarket cartridges, such as one depicting a seller opening his coat to reveal printer cartridges. The headline: “BEWARE: 1 IN 3 BARGAIN TONERS LEAK OR FAIL.” HP’s website stated, “Lower-priced laser printer toner delivers just what you'd expect. Lower quality. QualityLogic asked real business printing customers about the level of print quality they require for different business purposes. Often, remanufactured cartridge print quality degrades, resulting in pages that are not good enough for distribution to customers and others outside the company or even for circulation within the company.” HP-Thailand allegedly also sent two letters to a hospital in Thailand to convince it not to use Turbon’s cartridges, after Turbon had orally been promised the contract, saying that refilled cartridges would not work, might cause print quality problems, would harm the printers, would be “hazardous to your health,” and suchlike. Turbon lost the contract.

The court found Turbon failed to state a claim for misappropriation of trade secrets or unfair competition.

Lanham Act: HP argued that Turbon lacked standing because its ads and website referred only to “bargain toner” and “remanufactured cartridges” generically. But Turbon wasn’t required to show that it was named, rather that it had "(1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising." Famous Horse Inc. v. 5th Avenue Photo Inc., 624 F.3d 106, 113 (2d Cir.2010). Where, as here, the parties compete, courts strongly favor standing.

Turbon alleged a reasonable interest to be protected: “its reputation for producing functional laser printer cartridges at a low cost.” Likewise, it alleged a reasonable basis for believing that its interest was likely to be damaged because, if HP's "suggestions of competitive superiority" were "effective," they were likely to harm Turbon’s sales.

However, Turbon didn’t properly allege literal falsity. The ads referred to the industry as a whole, but Turbon didn’t allege “any facts regarding the quality or reliability of after-market cartridges in general that could support a finding of falsity.” Instead, Turbon made allegations about the quality of its own products. What about misleadingness? Turbon argued that the court could presume misleadingness where a misrepresentation was intentional, but the complaint didn’t support a reasonable inference of falsity, and thus couldn’t support a reasonable inference of knowledge of falsity.

Tortious interference/fraudulent inducement claims remained, with uncertainty over the court’s jurisdiction over HP-Thailand.

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