Monday, August 13, 2012

All in the game: misleading press releases support Lanham Act claim

TASER Intern., Inc. v. Stinger Systems, 2012 WL 3205833 (D. Nev.)

TASER makes tasers.  Stinger’s assets have been sold to Karbon, but it produced a competing “electronic control device.”  Defendant Gruder was its CEO during the relevant time period, while defendant McNulty was a lawyer who sold patents and molds to Stinger in exchange for stock.  TASER alleged that, with Gruder’s approval, McNulty drafted misleading press releases for Stinger that negatively affected TASER’s stock value.  McNulty also allegedly drafted TASER-damaging press releases for Bestex, a company that makes traditional stun guns, and also allegedly represented and counseled Bestex pro bono in other matters.  TASER alleged that it suffered resulting damage when investors shorted its stock (this makes sense for the dismissed securities fraud count, but query whether it alleges Lanham Act damage).  McNulty allegedly owned shares in Stinger and in LEA, a company that sells surveillance equipment, when he authored the misleading press releases. 

In a previous litigation against Stinger, in which McNulty served as Stinger’s counsel, there was a stipulated dismissal of Lanham Act claims, noting that “there has been no resolution of any factual or legal issue on the merits, and the dismissal of those claims should not be construed as an adjudication against or in favor of either party.”  The case ended with a finding of patent infringement against Stinger.  TASER alleged that Stinger’s misleading 2007 press release about the case caused TASER’s stock price to drop, representing a $40 million loss in market capitalization.  Further, TASER alleged that a January 2008 series of press releases similarly harmed it.  Stinger’s press releases concerned its requests to the PTO for reexamination of one of TASER’s patents and related matters. 

In addition, in April and September of that year, Stinger issued a press release and email that TASER alleged was based on a vexatious false advertising lawsuit.  In the lawsuit, Stinger accused TASER of misleading consumers about a federal report; the suit was announced the same day TASER released its quarterly earnings, and this was allegedly misleading because the lawsuit was meritless and Stinger had no intention of prosecuting it.  “Stinger never served TASER, and voluntarily dismissed the lawsuit after the service cutoff date passed and after an order to show cause was issued against Stinger. TASER alleges that the Stinger lawsuit was intended merely to facilitate the misleading press release.”  The email was similar to the press release.

As for Bestex, TASER alleged that McNulty approached LEA’s president to propose a sham agreement between Bestex and LEA to publish press releases that would drive up LEA stock and hurt TASER.  TASER provided transcripts of recorded conversations describing this plan.  LEA refused.  Nonetheless, TASER alleged, McNulty issued a press release in January 2008 on behalf of Bestex that allegedly misled the public into believing that Bestex and LEA had entered into an agreement, in order to push up LEA stock.

TASER’s securities law claim was dismissed, but its trade libel/defamation, Lanham Act, and state deceptive trade practices claims survived.  The court found that there was no claim preclusion or judicial estoppel, since the earlier case was about different facts (not the press releases at issue here) and specifically said that no Lanham Act issue had been resolved on the merits; TASER’s damages claims here weren’t clearly inconsistent with what it claimed in the patent lawsuit.

Defendants argued that McNulty wasn’t jointly and severally liable for any violations by Stinger, but a corporate officer’s active participation in infringing (false advertising) activity is enough to subject him or her to liability.  Defendants failed to show as a matter of law that McNulty lacked personal involvement in the creation, drafting, and publication of the press releases.

Defendants also argued that there could be no claim for the Bestex press release against the defendants because TASER hadn’t named Bestex as a defendant.  TASER didn’t present evidence that Stinger or Gruder had anything to do with the release, or that McNulty himself published the release.  Moreover, defendants argued, Gruder and McNulty weren’t direct TASER competitors.  It was true that TASER hadn’t demonstrated Stinger or Gruder’s involvement in the Bestex press release; yet because it hadn’t deposed relevant witnesses, a ruling on liability would be premature.  Further, TASER did provide sufficient evidence of McNulty’s personal involvement to avoid summary judgment, including an email from him to the PR Wire Service with the entire release, which demonstrated “some level of personal participation” in the publication and evidence of his general efforts regarding press releases.

As to the direct competition argument, it wasn’t true that individual defendants had to be direct competitors, as long as they acted as agents of an infringing (false advertising) company and actively participated/were a moving, active conscious force behind the violation, they could be liable under the Lanham Act.  Bestex didn’t need to be named in order for its agent to be personally liable, especially since the allegations were that both individual defendants were actually acting as agents of Stinger.

As for the April/September 2008 lawsuit-related claims, defendants argued that TASER failed to show falsity/misleadingness.  The court disagreed.  The headline was “TASER sued for false advertising, unfair competition and injurious falsehood.”  The press release quoted the Stinger complaint’s allegations that TASER represented to consumers that the underlying federal report was up to date, when it was actually based on an older version of the technology. “The release also included allegedly misleading assessments of Stinger's newest technology as against TASER's.”  The facts created at least a triable issue of fact about whether the lawsuit was filed for the purpose of releasing misleading press statements.  Stinger didn’t serve TASER; the release didn’t provide “adequate background” into the report or what it said; and there was evidence that Stinger and McNulty wanted to pursue a strategy of using misleading press releases to harm TASER’s stock value, making intent to mislead more likely.  The Stinger lawsuit was indeed pending at the time, but that wasn’t enough to preclude a Lanham Act claim.  (It’s not clear to me what’s alleged to be misleading about the statements—this is a very layered set of allegations.  Note that the court does not appear to require evidence that consumers were actually misled in order to avoid summary judgment, even without literal falsity; perhaps this is the rare case where intentional misleadingess substitutes for evidence of consumer reception.)

I'm left with the question of harm I began with: is harm to the stock price Lanham Act harm?  Who are the relevant consumers?

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