Friday, March 23, 2018

Reminder that materiality is a matter of likely effect, not certainty

E-Imagedata Corp. v. Digital Check Corp., No. 15-CV-658, 2018 WL 1411226 (E.D. Wis. Mar. 21, 2018)

The parties compete in the market for hardware/software systems used to view microform on a screen and convert it into digital files. [Microform!  Good to know some things are still around.] The systems cost thousands of dollars and are sold to institutions like libraries, universities, and businesses. Each party uses resellers who compete directly for many sales through a process that often includes bidding, in-person product demonstrations, and hands-on customer testing.Plaintiff e-Image sells the ScanPro and defendant ST Imaging sells the ViewScan, allegedly falsely advertising its optical zoom capabilities and camera megapixel capabilities, as well as its UL certification; “UL did not certify any of the ViewScan devices until December 2015—when it certified the ViewScan III—but brochures for all 3 devices, published months and years earlier, indicate UL certification.”  e-Image also alleged that ST Imaging falsely or deceptively equated its ViewScan devices with e-Image’s competing ScanPro devices.

e-Image also asserted claims arising out of a failed bid protest that it lodged with the GAO after the National Park Service awarded a contract for “one camera microfilm scanner” to an ST Imaging reseller. e-Image argued that ST Imaging’s product did not meet the terms of the government’s solicitation, which required that the scanner’s “camera have a ‘minimum 25 megapixels.’ ” The GAO rejected e-Image’s proposed interpretation as unachievable by any commercially available product. The GAO made two relevant published findings: (1) e-Image “knew that the ordinary convention in the industry was to represent camera megapixels in terms of the camera sensor itself” and, thus, (2) the “camera sensor resolution” for the ScanPro 3000 is “6.6 megapixels,” not “26 megapixel[s],” as e-Image continues to assert. ST Imaging then emailed its authorized resellers: “If you are in a bid and your prospect says that the competition has a 26 megapixel camera, please use [the GAO’s decision] to show that they only use a 6.6 megapixel image sensor.” e-Image alleged that ST Imaging attacked its reputation by claiming that e-Image lies about its own products’ specifications.

Materiality: e-Image was not required to “prove that a specific commercial statement by ST Imaging actually affected a specific purchasing decision by a specific customer.” Courts “generally only require a likely, as opposed to an actual, effect on consumer choice.” A reasonable jury could find materiality, given record evidence that institutions looking to purchase microform systems commonly set requirements for bids, including minimum requirements for a scanner’s “optical zoom lens” and “camera megapixels,” and that the proposed product be certified as meeting applicable product safety standards, like UL’s. ST Imaging’s resellers represented compliance with these standards, at least in part, by submitting prefabricated marketing materials from ST Imaging. This raised a genuine dispute on materiality.

Injury: the only customers deposed testified that price was “a significant, and perhaps the dominant, factor in many of the purchasing decisions at issue here,” while ease of use also mattered. But “a reasonable jury could find that ST Imaging was able to adopt lower prices by falsely claiming that its products were certified by UL and had capabilities that they lacked without incurring the usual costs of certification or product development. Similarly, a reasonable jury could find that by deceptively equating its products with e-Image’s products, ST Imaging was able, in many cases, to mislead potential customers into making purchasing decisions based on price alone.”  

e-Image sought partial summary judgment on liability for literally false representations, such as ST Imaging’s claims that its ViewScan devices were certified by UL. But materiality and injury could also be found against e-Image.  “[T]he record suggests that a substantial majority of the parties’ customers make their purchasing decisions after in-person product demonstrations that typically last one to two hours, which may mitigate or eliminate whatever influence ST Imaging’s promotional statements might otherwise have on customers’ purchasing decisions.”  [I wonder if the court will let e-Image make a bait and switch argument, which would be consistent with the reasoning above: if ST Imaging only got in the door by falsely representing that its products met the bid standards, then its ultimate persuasiveness—especially if the initial falsehoods were never corrected—probably shouldn’t break the causal chain.]

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