Paid spokesperson engaged in "advertising or promotion" for Lanham Act purposes

Underground Solutions, Inc. v. Palermo, 2014 WL 4703925, No. 13 C 8407  (N.D. Ill. Sept. 22, 2014)

 

UGSI sued Palermo for trade libel, interference with prospective economic advantage, interference with contract, false advertising under the Lanham Act, and violation of the Illinois Uniform Deceptive Trade Practices Act (IUDTPA).  UGSI sells fusible polyvinyl chloride (PVC) pipe, which is used “in water and wastewater pipeline applications, as well as for conduit for electrical and fiber optic applications.” Indeed, it is “the sole supplier of thermally buttfused PVC pipe in the United States.”  Palermo was allegedly hired as a paid spokesperson for UGSI’s competitor, Performance Pipe, which makes high-density polyethylene (HDPE) pipe. (More on previous litigation between the parties.)

 

USGI alleged that, since October 2010, Palermo presented false and misleading information about USGI’s products (albeit without using USGI’s name) at multiple industry conferences and on his website.  He allegedly didn’t disclose his affiliation with Performance, which misled audiences into believing that his conclusions were “based on objective scientific evidence and valid third party investigation.”  UGSI also alleged that Palermo “contacted UGSI’s customers following pipeline incidents involving Fusible PVCTM pipe and told the customers that the Fusible PVCTM pipe and/or thermally butt fused PVC joints caused the incident, despite Palermo’s failure to conduct a thorough and complete investigation of the cause of such pipeline incidents.”

 

USGI alleged harm to existing and prospective business relations, including that its pipes were excluded from consideration by at least two consulting engineering firms that design systems for clients. The complaint quoted e-mails from two consulting engineers who expressed hesitation about using UGSI’s pipes after reading Palermo’s reports. As a result of Palermo’s misrepresentations, engineers and municipalities that “had previously specified Fusible PVCTM pipe as the only acceptable material for their projects changed the specifications to include an alternate product, such as HDPE.”

 

Palermo sought to have the complaint dismissed on the ground that the statute of limitations expired before UGSI sued on November 21, 2013.  A one-year limitations period applied to the trade libel claim, and three years to the Lanham Act and IUDTPA claims.  The court found that California’s two-year limitations period applied to the tortious interference claims.

 

The complaint didn’t plead facts sufficient to conclude that the claims were time-barred. The court assumed for these purposes that the single publication rule applied to Lanham Act claims as well as libel claims, but that only applies to copies of “any one presentation to an audience.” UGSI alleged that Palermo made multiple presentations and published “variations” of his slide show on his website.  Each new presentation could trigger liability, so USGI’s claims weren’t time barred as to Palermo’s live presentations within the limitations periods.  The limitations period begins to run when a website is first published, but the complaint alleged that different versions of the slideshow were posted online, including one during or after 2012, so the single publication rule didn’t bar the claim on the pleadings.  Nor could the court determine whether the discovery rule tolled the statute of limitations on the pleadings.  UGSI also argued that its trade libel action accrued only after it suffered special damages (making its cause of action complete); this too prevented dismissal.

 

As for the Lanham Act and IUDTPA claims, the majority of the accused presentations apparently took place after the November 21, 2010 accrual date.  Courts have applied “continuing wrong” principles to Lanham Act claims, allowing plaintiffs to pursue relief for time-barred acts linked to acts within the limitations period. This too might apply.

 

Palermo then argued that UGSI insufficiently alleged special damages for its trade libel claim.  To prevail, UGSI would have to identify specific lost sales, but on a motion to dismiss it was enough to identify a concrete loss.  Though the plaintiff must allege “some actual pecuniary loss,” “an estimation of final total dollar amounts lost is unnecessary.” UGSI’s allegations that it was “required to expend extensive time and effort to address customers’ and prospective customers’ questions about Fusible PVCTM pipe and assuage their concerns” and that it received e-mails from consulting engineers expressing concern about Palermo’s reports sufficiently alleged special damages.

 

Palermo then argued that there could be no trade libel because the allegedly defamatory statements were about fused PVC in general, not UGSI.  UGSI rejoined that it was the only seller of butt-fused PVC pipe in North America and thus identified by implication.  California cases suggested that the “of and concerning” requirement allowed a plaintiff to be identified by clear implication, so that theory survived a motion to dismiss.

 

Intentional interference with prospective economic advantage: Palermo argued that Noerr–Pennington immunized him because his statements were directed at municipal customers and non-profit associations that set pipe standards for municipalities.  Outside the antitrust context, Noerr-Pennington hasn’t been applied to fraud and misrepresentation claims.  Also, even in the absence of intentional falsity, it didn’t seem that Palermo directly petitioned any government official.  Statements in communications between private parties don’t have much to do with the right to petition the government.

 

As for harm, plaintiffs should allege a lost contract, failed negotiation, or ongoing business relationship to state a claim for intentional interference under California law.  UGSI’s allegations that its products “were being considered by several municipalities for upcoming projects” and that potential customers “were dissuaded” based on Palermo’s statements were insufficient.  Though engineers expressed concerns and UGSI’s pipes were allegedly excluded from consideration by at least two firms, that still didn’t identify any pending contract or negotiations that were ended by the alleged misrepresentations. Thus, the claim was dismissed with leave to amend.  Similarly for the tortious interference with contract claim.

 

Lanham Act false advertising: Lexmark undercut Palermo’s argument about lack of competition.  He argued, however, that he hadn’t engaged in “commercial advertising or promotion.” UGSI contended that Palermo engaged in promotion by giving speeches and posting reports as a paid spokesperson for Performance.  True, courts have refused to allow Lanham Act claims based on face-to-face meetings with a small number of people. But the distinction rests on whether a communication is a “generalized solicitation rather than an individualized communication.” Fortunately, the Seventh Circuit has “clarified” its previous exclusion of communications at trade shows from the Lanham Act, Sanderson v. Culligan International Co., 415 F.3d 620 (7th Cir. 2005), and has held that advertising or promotion need not be published or broadcast to the general public, Neuros Co. v. KTurbo, Inc., 698 F.3d 514 (7th Cir. 2012), where promotion in the relevant industry takes other forms.  Palermo’s presentations to a large group of industry members for the purpose of directing customers to select Performance Pipe’s products were “advertising or promotion,” as were material published online.

 

Illinois deceptive trade practices: Palermo argued that there wasn’t a sufficient nexus to Illinois. IUDTPA claims only apply “if the circumstances that relate to the disputed transaction occur primarily and substantially in Illinois.”  Factors that determine this include the plaintiff’s residence, where the deception occurred, where the damage to the plaintiff occurred, and whether the plaintiff communicated with the defendant or its agents in Illinois.  UGSI didn’t allege that Palermo’s misrepresentations “occurred primarily and substantially in Illinois.” All it alleged was that a Performance Pipe sales manager presented Palermo’s materials at an Illinois conference and that Palermo contacted an Illinois customer after a pipeline incident, and that two emails from Illinois engineers expressed concerns about his reports.  Claim dismissed with leave to amend if UGSI could show a better nexus to Illinois.