bait and switch as both false advertising and trademark infringement

ADT LLC v. Vision Security, LLC, 2014 WL 3764152, No. 13–8119 (S.D. Fla. July 30, 2014)

ADT competes with Security Networks to sell alarm systems.  Vision Security is an agent of Security Networks; it doesn’t manufacture alarm systems, but instead purchases them from manufacturers like GE Security, Honeywell, and 2Gig.  As alleged: Brett Harris is a Vision regional sales manager who oversaw sales agents in five states in 2013, and also held training seminars in several of those states.  In recordings of some of those seminars, he allegedly instructed sales agents to find houses with ADT signs and approach the homeowners, pretending to be a technician “with” an alarm manufacturer such as GE, and “doing business with” ADT.  The sales agents were to inform the homeowner that they were there to provide a free upgrade to the house’s alarm system as required by the local fire and police departments.  After replacing the alarm keypad, they were to explain to the homeowner that GE prefers Security Networks over ADT for security monitoring and induce the homeowner to switch.

ADT alleged that most, if not all, of these statements were false, but that these recordings circulated throughout Vision, that Vision had used this sales pitch on customers in seven states, and that many ADT customers switched to Security as a result.

ADT didn’t specify whether it was bringing its claims under §43(a)(1)(A) or (B), and I must admit this seems to be the rare case where both are plausible on the alleged facts.  The court noted that oral statements, if widely disseminated, can be “commercial advertising or promotion,” and their contents can be shown by looking at sales agents’ training.  The court found at least three statements sufficient to state a claim: instruction to salespeople to say they’re “with GE,” that local police and fire departments require homeowners to upgrade their systems, and that GE encourages homeowners to switch from ADT to Security Networks.  As literally false statements, they could be presumed likely to deceive.  And they were plausibly material: “The use of GE’s name and endorsement, as well as a statement that police and fire departments require the homeowner to change his alarm system, likely influenced each consumer’s decision to change their alarm keypad and switch from ADT to Vision.”  This conduct “no doubt” injured ADT, both causing it to lose customers and also possibly damaging its goodwill.

In addition, ADT stated a claim for false endorsement, the elements of which are identical to those for trademark infringement.  ADT alleged that Vision agents visited their homes and affirmatively represented themselves as “with” or “on behalf of” ADT, only disclosing their relationship with Vision after “tampering” with customers’ alarms.  This is a bait-and-switch tactic barred by §43(a)(1)(A).  At least once, Vision specifically instructed sales agents to disavow any direct relationship with ADT. But some of Vision’s sales agents may not have followed this instruction. “While Vision’s false endorsement may not be as systematic as its false advertising, ADT has not failed to state a claim.”

Vision did succeed in dismissing Florida statutory FDUTPA claims.  Florida lacked the most significant relationship to the alleged unfair competition.  Pure economic loss was felt in ADT’s headquarters in Florida, but the injury also occurred in the states where ADT lost customers.  And the injury was inflicted in the states in which the training seminars took place and circulated (not Florida).

However, because ADT alleged “unfair competition” generally, without specifying a particular state, and because it stated a claim under the Lanham Act, the court found that ADT could state a claim for unfair competition in the laws of the applicable state.  The governing state or states’ laws had yet to be determined, but it wasn’t Florida.