literal falsity still needs to be material, and court wants a survey or other direct evidence thereof

LivePerson, Inc. v. [24]7.AI, Inc., 2018 WL 5849025, No. 17-cv-01268-JST (N.D. Cal. Oct. 26, 2018)

LivePerson “provides online chat engagement services through a digital platform that it sells to website operators.” That is, it helps websites provide real-time text-based communications with website users directly on the website. Its platform tries to identify when initiating a chat with a particular user is most likely to produce a positive outcome, such as a sale, using rules based on variables such as the user’s navigation history.

[24]7 provides customer service agents to businesses, including customer service agents that participate in the type of online chats initiated through LivePerson’s chat platform. In 2006-2007, the parties agreed to market and provide services to mutual customers; at the time, [24]7 didn’t have its own chat platform, while LivePerson offered a chat platform, but did not have digital chat agents to staff that platform.  After the direct contractual relationship ended, the two companies continued to provide their services to mutual customers.

Then (curse your sudden but inevitable betrayal!) [24]7 introduced its own digital chat platform. It touted its platform, claiming that it was the “first smart chat” platform. Three mutual customers switched to using [24]7’s chat platform. Through these arrangements, [24]7 gained access to the rules and data developed for the customers, which LivePerson claimed as trade secrets in this action; the court denied summary judgment on the theory that LivePerson used improper means. I’ll focus on the false advertising claims.

The challenged statements touted [24]7 Assist as “the industry’s first smart chat that uses prediction and real-time decisioning with big data to drive customer experience,” “the first predictive, real-time customer assistance solution for chat,” and the “world’s first smart chat platform powered by prediction in real-time.”  The court declined to grant summary judgment on puffery, but did on materiality.

This wasn’t puffery because the implication of [24]7’s “first” claims was that LivePerson’s competing platform lacks some element of smart or predictive technology, or at the very least, had a less reliable version. Identifying whether the products possess certain technological features was specific enough to avoid puffery. Even if “smart” and “predictive” were vague in the abstract, in context,  [24]7’s statements introduced particular features as “smart” or “predictive.” “A reasonable consumer could understand [24]7’s ‘first’ statements as implying that other products available at the time lacked these features.” That’s falsifiable.

However, materiality wasn’t so easy. The court declined to presume materiality on the theory that [24]7’s statements were literally false; materiality is a separate requirement.

LivePerson offered a declaration from its Vice President stating that the claim of being “first” to develop a product is likely to influence purchasing decisions because “older technology that has been in the market longer is viewed as having had more time for refinement and development based on data collected over the years.” But “untested, generalized assumptions that a statement is likely to influence purchasing decisions” weren’t sufficient to demonstrate materiality.  In the continuing game of telephone courts have played with the relationship between falsity and materiality, we now hear that materiality “is ‘typically’ proven through consumer surveys,” which provide direct evidence of a statement’s impact. [Voiceover: materiality is not typically proven through consumer surveys. That's not to say the rule can't change--it may be changing through this process of doctrinal accretion--but materiality is quite often a matter of common sense where a claim is central to performance or related to health or safety, and that treatment makes plenty of sense.]

Here, there was no evidence of consumer reaction, and evidence that they didn’t simply take [24]7’s statements at face value in making purchasing decisions. The parties entering into multi-year contracts between companies; for example, Sears conducted an extensive head-to-head test before switching.