Thursday, October 18, 2012

Lanham Act claim doesn't require allegation that specific individuals saw or relied on falsity

American Specialty Health Group, Inc. v. Healthways, Inc., 2012 WL 4863779 (S.D. Cal.)

Healthways moved for leave to file amended counterclaims, including a Lanham Act claim.  Plaintiff ASH sued Healthways for tortious interference, unfair competition, and violations of the Sherman Act.  Healthways counterclaimed for tortious interference and unfair competition.

Healthways’ proposed amended counterclaims alleged that the parties compete in the senior fitness benefits market: both contract with fitness facilities to provide a network for their health plan customers to offer programs to the plans’ senior members.  Healthways’ program is SilverSneakers and ASH’s is Silver & Fit.  Health plans choose senior fitness programs based mainly on the size and composition of the network.

ASH’s Silver & Fit site advertises that users can search to find facilities in their areas, though the search says “you may not have access to all of the facility types listed,” and that “Information in this directory is updated daily and subject to change without notice.”  In mid-2012, Healthways contacted 366 of its fitness facilities listed in the online directory as “Silver & Fit facilities,” and 62 confirmed that they weren’t in the Silver & Fit network.  Some reported unfamiliarity with Silver & Fit, some reported unsuccessful attempts to enlist them, and 20 said they’d been in Silver & Fit but left it, and some of those reported previous requests that ASH remove them from its website.

Leave to amend is freely given when justice so requires; a motion can be denied as futile or legally insufficient.  ASH argued that the Lanham Act counterclaims were futile because of lack of standing, failure to state a claim, and failure to satisfy Rule 9(b).

The 9th Circuit generally presumes commercial injury in cases of direct competition plus misleading claims.  Though conclusory allegations of injury can be insufficient, a direct competitor can more easily/plausibly allege competitive injury.  Given that the alleged false statements relate to the network, which ASH itself alleged was the most significant criterion for health plan consumers, it was plausible that this would draw health plan customers away from Healthways by making them believe that ASH offers a more attractive network of facilities.

This result on standing presaged the result on failure to state a claim.  Healthways sufficiently alleged materiality, despite ASH’s argument that there was no allegation that health plans were aware of or had ever seen ASH’s online directory, let alone relied on it.  Healthways alleged that ASH maintained a publicly accessible marketing website for its products, including Silver & Fit, which directed visitors to the Silver & Fit website for details.  Materiality can be shown without proof that health plans and seniors have actually seen the online directory; the issue is whether the misrepresentation goes to the nature of the product/would affect purchasing decisions, and this misrepresentation plausibly would do so.

ASH argued that it wasn’t engaged in advertising or promotion, because the site was intended to provide information for existing Silver & Fit members.  But anyone could see it without logging in as a member, and ASH’s marketing website for actual and potential consumers directs them to the Silver & Fit website.  “Because of the clear promotional character of the online directory, Healthways has plausibly alleged that the false statements were made in a commercial advertisement.”

ASH then argued that its disclaimers shielded it from a finding of falsity.  But disclaimers aren’t sufficient to avoid liability unless they’re sufficiently prominent and unambiguous to change the apparent meaning of the claims.  For purposes of the motion (which has the same standards as that for a motion to dismiss), ASH’s disclaimers couldn’t shield it.  The repeated statement “[i]nformation in this directory is updated daily and subject to change without notice” “suggests that the accuracy of the current listing of facilities is checked daily and corrected daily, not that the directory may include facilities that are not in fact within the Silver & fit network.”  The “you may not have access” statement only informs visitors that they might not have access to a particular club type, not that a facility in the directory might not actually be within the network.  The additional disclaimers in the Terms and Conditions (linked on the bottom left of every page) provides that ASH “does not make any warranty, express or implied, ... for the accuracy or quality of any information present on this Web Site.”  Healthways argued that this was too tiny and distant, and that was a question of fact.

ASH finally argued that Healthways failed to allege likely injury in more than conclusory fashion.  No.  Because they’re direct competitors, and because the information about a key service feature was allegedly false, Healthways could lose business to ASH.

Likewise, the court concluded ASH’s Rule 9(b) objection failed.  The 9th Circuit hasn’t ruled on the matter, but many district courts have applied Rule 9(b) to Lanham Act false advertising claims as “grounded in fraud” (why not trademark claims when neither claim requires intent? Because trademark is just different despite having virtually the same statutory foundation, world without end, amen).  Anyway, the court agreed that Rule 9(b) applied, but Healthways had satisfied it. Healthways was not required to identify the improperly listed facilities one by one; Healthways provided ASH enough infomration to put it on notice of the specific conduct complained of.  Likewise, Healthways wasn’t required to name individuals who’d seen or been misled by ASH’s statements.  Literal falsity doesn’t require evidence of consumer deception, and this was a literal falsity claim.  (And even if it hadn’t been, I have to say, I can’t imagine you’d have to plead who participated in your survey, if you even have to allege that you conducted one, which I doubt.)

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