statements to regulators aren't commercial advertising

Presby Environmental, Inc. v. Advanced Drainage Systems, Inc., No. 13–cv–355, 2014 WL 4922986 (D.N.H. Sept. 30, 2014)

Presby sued ADS, a competitor in the septic system product market, for allegedly violating a settlement agreement; I’m only going to address the Lanham Act aspects.  Presby’s waste treatment disposal system at issue is Enviro-Septic, while ADS’s is GEO-Flow, both designed to replace traditional septic systems, and both subject to regulation by environmental authorities.  In 2008, Presby sued, alleging that ADS was securing state approvals for GEO-Flow by improperly relying on testing that Presby had conducted on the Enviro-Septic system.  They settled with an agreement that ADS wouldn’t represent in the marketplace that GEO-Flow was the “functional equivalent” of Enviro-Septic and that it wouldn’t use Enviro-Septic test data as if they applied to GEO-Flow in regulatory or approval processes.

ADS allegedly made a series of representations about the functional equivalence of GEO-Flow and Enviro-Septic, including by providing the Vermont Department of Environmental Conservation and the Indiana State Department of Health with a copy of a document prepared by the New Hampshire Department of Environmental Services that compared the two systems. ADS allegedly told Vermont and Indiana regulators suggesting that GEO-Flow and Enviro-Septic were similarly-sized and functionally equivalent.  The complaint also alleged that ADS provided similar information to environmental regulators in Massachusetts and New York.

The court allowed the breach of contract claim based on the settlement agreement to continue in part, but dismissed the Lanham Act claims.  It wasn’t clear whether Presby brought a false association or false advertising claim, but it failed either way.  For false association, consumer confusion is required.  Presby didn’t allege any confusion by consumers; the only relevant allegations involved representations to state environmental regulators, but didn’t explain how consumer confusion could result. 

Presby argued that deliberately false statements, made with an intent to deceive, didn’t require accompanying allegations of consumer confusion.  But that’s false advertising literal falsity, not false advertising. Presby pointed to an affidavit about the surreptitious installation of GEO-Flow instead of Enviro-Septic at certain job sites. Even if the court considered these allegations, isolated incidences of swapped septic systems weren’t the same as confusing an appreciable number of reasonable consumers.  (What’s the size of the relevant market?)

False advertising also failed as a theory for want of “commercial advertising or promotion.” The complaint merely alleged a series of representations to environmental regulators in different states.  Advertising or promotion for Lanham Act purposes requires commercial speech intended to influence potential consumers to buy the speaker’s products or services, sufficiently disseminated to the consuming public. “[S]tatements made to government regulators do not constitute commercial advertising,” and “generally are not intended to influence consumer choice.”  Presby argued that the regulators here were gatekeepers, whose approval was required before ADS could market its product. That was insufficient.