Wednesday, June 26, 2019

failure to show causation dooms duelling flange false advertising claims

Boltex Mf’g Co. v. Galperti, Inc., 2019 WL 2568338, No. H-17-1439 (S.D. Tex. Jun. 21, 2019)

This is a false advertising and unfair competition case about normalization, “a costly heat treatment process that changes the physical composition of carbon steel to increase its toughness and ductility.” ASTM standards require heat treatment for certain types of flanges; normalization is one available method, and though the standards don’t require it,  many customers do.  Boltex alleged that defendants advertised their flanges as normalized when they aren’t. Galperti counterclaimed that: (1) plaintiffs Boltex and Weldbend falsely advertised their products as “Made in the USA” and/or “American Made”; (2) Weldbend made misrepresentations regarding the “traceability” of its flanges from manufacture in the US through to the customer and yield strength; and (3) Boltex made misrepresentations in the Reference Manual published on its website.

Defendants argued that plaintiffs couldn’t show harm. Plaintiffs argued that this was a comparative advertising case in which harm could be presumed, but it wasn’t enough to argue that Galperti sells the same type of flanges or uses “Boltex’s own price list in describing [their] flanges” in an email exchange, where there was no explicit comparison.  There was evidence that Boltex is one of the few companies that offers a price sheet and that many competitors may use Boltex’s price sheet as a guideline to set their prices.

Anyway, it wouldn’t make sense to presume harm here. The presumption exists because “[a] misleading comparison to a specific competing products necessarily diminishes that product’s value in the minds of the consumer.” There is no reason to suggest that the value of plaintiffs’ flanges was diminished by use of the price sheet.

There was no admissible evidence of injury. Plaintiffs offered only hearsay from their salespeople who said that customers told them they’d gone with defendants instead.  [Note that it’s not hearsay when the salespeople testify that customers told them that defendants had offered the same product for less, because those customer statements are not submitted for the truth of the matter asserted.]  Motion for summary judgment granted.  I find this result a bit surprising, assuming the underlying correctness of the falsity allegations, but it gives plaintiffs a hell of an advertising tool.

Fortunately for plaintiffs, I guess, defendants also couldn’t show causation in their counterclaims.  “In some cases, a party need not provide direct evidence of injury if the party provides evidence that the parties were competitors and that the plaintiff was in some way injured.” But the jury still needs sufficient evidence to make the inference.  [I would have thought that the vital materiality of normalization would have counted in this case; if there’s a real subset of customers that won’t buy without it, and if plaintiffs set the standards in the industry with their price sheet as the reference point, I would’ve let the jury see it.]  There wasn’t evidence that would allow a jury to infer that the parties compete in the market for US-sourced flanges [which is to say that the alleged misrepresentations most obviously harm other, truthful “made in the USA” advertisers—though that itself seems dubious; it’s easy to imagine people who prefer made in the USA if they don’t have to pay too much of a premium for it but do choose between multiple national origins.]  It wasn’t enough to have Boltex’s president’s statement that he “generally considers flanges that are made from U.S. material and flanges made from non-US material to be competing with each other.” [Again, seems like grist for an ad campaign, if the charges are accurate.]

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