Monday, April 02, 2018

Post-sale statements that prevent return of items can constitute advertising & promotion

Boltex Manufacturing Co. v. Galperti, Inc., 2018 WL 1535199, No. H-17-1439 (S.D. Tex. Mar. 29, 2018)

The parties compete in the market for carbon steel flanges.  Normalization is a heat treatment process that changes the physical composition of carbon steel to increase its machinability and toughness; it’s more expensive to make normalized flanges than non-normalized (or forged) ones. Boltex sells normalized flanges, made with processes compliant with ASTM standards, which require heat treatment for certain types of flanges. Several processes are available, but many customers will only purchase certain flanges if they are normalized.  Boltex stamps its normalized flanges to indicate their compliance with ASTM standards and provide a Mill Test Report (“MTR”)—an industry-standard report “used to promote and certify a material’s compliance with the appropriate ASTM standards, applicable dimensions, and physical and chemical specifications.” Boltex charges more for normalized flanges than for forged ones.

Defendants allegedly advertise some flanges as normalized and as meeting the the ASTM standards in the same way as Boltex touts normalization, but their flanges are allegedly not normalized and not ASTM-compliant.

Defendants argued that stamping flanges and providing MTRs wasn’t “advertising or promotion,”  because MTRs and stamped flanges are “post-sale communications to consumers who have already purchased a product[.]” Further, because the statements are “only seen by the specific customer who has already purchased the product” the statements weren’t disseminated sufficiently to the relevant purchasing public within the carbon steel flange industry.

However, previous cases about package inserts weren’t binding and were distinguishable. Here, the stamping and inclusion of MTRs, rather than containing new false statements, allegedly confirmed the assumption that consumers made when purchasing the flanges.  Stamping and MTRs allegedly allowed defendants to “convince their distributors to ship and their end use customers to accept non-compliant shipments” rather than returning them.  This was enough to state a plausible claim.

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