Monday, December 09, 2019

Touting a paid-for report as if it were independent could be false advertising; public webpage was "advertising"

Pegasystems, Inc. v. Appian Corp., --- F.Supp.3d ----, 2019 WL 6560120, No. 19-11461-PBS (D. Mass. Dec. 5, 3019)

Undisclosed sponsorship of a critical report from an apparently neutral source leads to a Lanham Act/state false advertising claim, which the court here refuses to dismiss. [Side note: I am unduly charmed by the business name Pegasystems. Well done, namers!] Also, just as you don't have to show how many people watched an ad on national TV to show that it was "commercial advertising or promotion," so too with a public page on the advertiser's own site.

In May 2019, defendant published a report, “Market Report: Analysis of Process Automation Investments and Total Cost of Ownership (TCO): Appian, IBM, and Pega.” Those three compete to make “business process management” software that helps create custom apps for business processes. holds itself out as “the leading destination for research, white papers and community forums on BPM and process automation.” Appian commissioned to publish the accused report, though this wasn’t disclosed to the public, and Appian highlighted the results on its website.

The Report provides its methodology on the first page: sent out an online survey and received 500 responses. It then “eliminated any non-compliant entries, such as those from organizations deemed too small or from firms engaged in the sale, development, or specific services involved with this type of software.” It conducted follow up interviews to ensure that the surveyed customers were “verified end user organizations,” leaving 104 “verified projects,” of which 17% used Appian and 10% used Pega. Omitting some specifics, the Report concluded “Appian was distinguished as the clear leader” based on its low total cost of ownership combined with faster time to market.

Appian’s website allowed users to get the report, which it categorized as a “Whitepaper.” It summarized the Report as follows: “Through approximately 500 responses, found that on average: • Appian customers build complete enterprise solutions 5 times faster • Appian customers use 79% fewer resources • Appian has more than 2x customers who’ve reached ROI in 2 years.”  It also created a webpage, “Appian vs Pega: Discover Why Enterprises Choose Appian,” with similar claims and linked to the report with a hyperlink labeled “READ THE 2019 BPM.COM REPORT.”

Without deciding that Rule 9(b) applied to Lanham Act false advertising claims, the court found that Rule 9(b) was satisfied. Appian/ were the who; the survey results and associated statements were the what; the Report/webpages were the where; and the when was “continuously.”

False advertising: Appian argued that Pega failed to plead sufficient dissemination to be commercial advertising or promotion.  Widening a smallish split on this issue—in the right direction, I think—the court found that it was enough to “target a class or category of purchasers or potential purchasers, not merely particular individuals.” “When Appian posted the Report’s findings on its website, it ‘target[ed] a class ... of purchasers.’”

Falsity/misleadingness: There were two misrepresentations: (1) failure to disclose the material relationship between Appian and BPM while presenting the Report as a neutral “white paper”; (2) presenting results as market averages without reflecting Pegasystems’ actual performance in the marketplace. Appian argued that the Report disclosed its methodology and didn’t claim to offer “generally applicable” comparisons between Pegasystems and Appian, thus wasn’t false or misleading.

First, it was plausible that the omission of the relationship between Appian and rendered the representations in the Report and on Appian’s website false or misleading. Even without an explicit statement that the Report had been independently developed, that was the necessary implication of the presentation. Appian identified as the Report’s author and then described as “a leading market research group.” states in the Report that its purpose was to “understand how automation software is being used.” “Nowhere in the Report or Appian’s statements promoting it would a reader learn that Appian was involved in the Report’s production — they would likely be left with the opposite impression. The allegation that the Report and website, when viewed in their entirety, are at the very least misleading is plausible because their description conveys neutrality.”

In addition, it was plausible that Appian made a literally false statement when it wrote that reached the Report’s results “Through approximately 500 responses.” Only 104 were verified and analyzed and, of those, only 27% of respondents used either Pegasystems or Appian. The website claim about sample size was literally false.

If this was just misleading, Pega would need to show that “a substantial segment of [the Report’s] audience” was actually deceived. However, a plaintiff does not need to “identify the particular consumer survey that will be used to support its allegations to survive a motion to dismiss.” And it had plausibly alleged actual confusion. It alleged that “[c]ustomers have informed Pegasystems that Appian has distributed or drawn their attention to the Report. These customers have been confused or deceived by the false and misleading conclusions of the Report[.]” That was enough for Twiqbal.

Injury: Pegasystems alleged that defendants’ statements had been disseminated to “major customers for which Appian and Pegasystems compete,” representing “prospective revenue streams in the millions of dollars.” It was plausible that an explicit unfavorable comparison between Appian and Pegasystems was likely to divert those customers from Pegasystems to Appian.

False advertising under Mass. Gen. Laws ch. 93A survived too. Appian argued that the challenged conduct did not occur “primarily and substantially” in Massachusetts, as required by state law. Appian argued that, “where the relevant deceptive conduct involves communications between a defendant and third parties, courts have said that the ‘center of gravity’ lies in the state in which the communications occurred (i.e., were ‘published’).” This was an issue not suited for resolution on a motion to dismiss. It was enoguh to allege that the plaintiff was based in Massachusetts, the injury occurred in Massachusetts, one of the defendants is in Massachusetts and another has an office there, and the document at issue was created there.

However, the complaint didn’t state a claim for Massachusetts common law false advertising or unfair competition. Common law false advertising requires fraud upon which a plaintiff relied to its detriment; Pega was the wrong plaintiff for that claim. Likewise, unfair competition is about consumer confusion as to source, which wasn’t alleged here.

Commercial disparagement/injurious falsehood claims survived, even though commercial disparagement covers only falsity and not misleadingness and also requires actual malice (but not that the statement be made in commercial advertising/promotion).  It was plausible that there was falsity here. Although a representation in a study is not false simply because the study’s “design ... was flawed” where the disputed “article plainly acknowledged possible flaws and limitations with the methodology that was used” and the plaintiff did not allege that the author “inaccurately interpreted or reported the collected data,” the situation was different here.  Pegasystems alleged that “manipulated its selection of responses and projects in order to create a sample favorable to Appian and detrimental to Pegasystems.” If so, it was reasonable to infer that the Report’s unfavorable statements about Pegasystems were based on skewed or inaccurate data and so were false. That would also satisfy the actual malice requirement.

Footnote: might have separate defenses but did not assert them here.

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