Countersuit over press release not barred by Dastar

ZS Associates, Inc. v. Synygy, Inc., 2011 WL 2038513 (E.D. Pa.)

ZS sued Synygy for defamation, commercial disparagement, and violation of the Lanham Act. The parties are sales and marketing consulting firms that compete to sell “incentive compensation services” including consulting, administration, and software services. Synygy initially sued ZS and related defendants for a variety of business torts. In 2009, after amending its complaint, it issued a press release about the lawsuit.

The core of the press release repeated the allegations that ZS “knowingly and improperly copied and misappropriated components of Synygy's sales compensation software and other intellectual property, and in addition, intentionally hired former Synygy employees, despite knowing about the existence of their non-compete agreements with Synygy, to gain access to confidential information acquired during their tenure with Synygy.” The press release explained that Synygy was asking for, among other things, punitive damages for acts of willful copyright infringement, and included a quote from the president/CEO that “The lawsuit we filed today contends that ZS knowingly copied our software and other confidential information with the intent to use our intellectual property in direct competition with us. Our position is that ZS continues to use our software and other confidential information, causing us to lose substantial revenue, profit, and company valuation, while they profit from its use ….”

Synygy argued that its press release was protected by the fair report privilege, kicking out the defamation and commercial disparagement claims. The Restatement (Second) of Torts says "[t]he publication of defamatory matter concerning another in a report of an official action or proceeding or of a meeting open to the public that deals with a matter of public concern is privileged if the report is accurate and complete or a fair abridgement of the occurrence reported." The court disagreed. Fair report is for unrelated third parties. Comment c says “A person cannot confer this privilege upon himself by making the original defamatory publication himself and then reporting to other people what he had stated.” The court predicted that Pennsylvania would adopt this rule and that it precluded Synygy’s claim to the fair report privilege.

Synygy moved to dismiss the Lanham Act claim because a press release isn’t commercial advertising or promotion. The court disagreed. Commercial advertising or promotion need not be a traditional ad campaign. The press release was (1) commercial speech; (2) by a defendant in commercial competition with the plaintiff; (3) for the purposes of influencing consumers to buy the defendant's goods or services; and (4) that is sufficiently disseminated to the relevant purchasing public to constitute advertising or promotion within the industry.

As to the commercial speech element, the relevant questions were whether the speech was an ad, whether it referred to a specific product or service, and whether the speaker had an economic motivation for the speech. The press release described Synygy’s services and was intended not only to set forth its legal claims but also to persuade potential clients to pick Synygy over ZS. It had a (plainly boilerplate) section labeled “About Synygy” that stated that “Synygy is the largest and most experienced provider of sales performance management (SPM) software and services” and that “Synygy has achieved 18 continuous years of success.” This was sufficient to be commercial speech. It was also sufficiently disseminated. Synygy submitted the release to “influential media outlets including Reuters, Yahoo Finance and Intellectual Property Today.” Given that those outlets target an audience that would be interested in Synygy’s services, that was advertising or promotion.

Synygy argued that Dastar precluded liability for the claims in the press release. The court followed the majority applying Dastar to 43(a)(1)(B) claims, despite what the Supreme Court said in what the court here called dicta. So: any misrepresentations about who created Synygy’s sales performance management solutions, or other misrepresentations of authorship, were not actionable. This was necessary because if a plaintiff were allowed to bring suit on the grounds that the defendant falsely advertised that it originated the ideas/creative content of goods, the plaintiff would have what was in effect a perpetual copyright.

Thus, some of the allegedly false claims were not actionable: anything that alleged that Synygy’s press release falsely attributed to Synygy the authorship of ZS’s products and services, including the claim that the press release "falsely suggest[s] and impl[ies] that Synygy was the market innovator and that ZS's products and services are knock-offs of products and services that Synygy developed," and that it was false to claim that "we have invested many years and a lot of money in product development, which led to Synygy creating the SCM software that has propelled our success year after year." These statements “can only be false insofar as they assert that Synygy, and not ZS, created the products and services offered by Synygy” and were thus barred by Dastar.

Other claims, however, were not barred. Allegedly false claims that ZS stole Synygy's software and confidential information and hired its former employees "despite knowing about the existence of their non-compete agreements with Synygy, to gain access to confidential information acquired during their tenure with Synygy" implicated ZS’s “commercial activities.” Synygy argued that this was just repackaging false attribution, but the court thought this was of a “categorically different nature” because it alleged that ZS conducted its commercial activities unethically, not that it engaged in copyright or patent infringement. (Sounds a bit like an "extra element" test--but wouldn't knowing copyright/patent infringement of a competitor's IP always be unethical?)  Also, the claim that ZS hired Synygy's employees in blatant disregard for the applicable non-competition agreements didn’t implicate Dastar in any way.

ZS also adequately alleged falsity/misleadingness to survive a motion to dismiss. “The fair import of the press release is that ZS stole software and confidential information from Synygy and that it hired Synygy's former employees in blatant disregard for their non-competition agreements.” Nor was specific evidence of actual deception or misleadingness required at the pleading stage. ZS alleged that the statements were false or misleading and that they harmed ZS’s reputation and goodwill, affecting sales demand.