using picture of competitor's product as reverse passing off

John Bean Tech. Corp. v. B GSE Gp., LLC, 2020 WL 4698984, No. 1:17-cv-142-RJS-DAO (D. Utah Aug. 13, 2020)

Plaintiff JBT “is a major player in the aviation industry for ground support equipment,” used to maintain aircraft, including preconditioned air (PC Air) units that cool aircraft and ground power units (GPUs) that power this equipment. JBT sought to enter the niche market to supply ground support equipment—primarily PC Air units and GPUs—for the F-35 fighter, which usually required specialized equipment. “To help it through the bidding process and to win these government contracts, JBT hired Defendant Bryan Bullerdick. Bullerdick left JBT after about three years, however, to become the head and majority shareholder of Defendant B GSE Group, LLC (BGSE),” which initially acted as JBT’s designated distributor. However, “Bullerdick began representing to industry contacts, primarily contractors and sub-contractors, that BGSE was the designer of several of JBT’s products and that JBT was merely the manufacturer of BGSE’s designs…. BGSE later began competing directly with JBT to win F-35 projects by supplying products manufactured by [competitor] Twist and others.”

I won’t discuss the trade secret/contract claims you can imagine from this situation; JBT also sued for unfair competition, trademark infringement, and false advertising under the Lanham Act. Defendants counterclaimed for, inter alia, tortious interference, negligent misrepresentation, and defamation, primarily relating to JBT’s efforts to inform industry contacts of its lawsuit against BGSE and Bullerdick. Here, JBT won summary judgment on some of its claims, including trade secret, trademark, and breach of contract, and kicked out some of the counterclaims, while defendants got summary judgment on the false advertising/defamation claim against them, and the rest was left for trial.

From 2015 to 2017, BGSE independently submitted several bids to sub-contractors to supply PC Air units or GPU systems (or both) for F-35 maintenance hangars. In many, “BGSE included JBT documents and pictures of JBT products but with JBT identifiers removed and replaced with BGSE identifiers.” For example, these two images are the same, but the second image was used in a BGSE submission with its logo superimposed over JBT’s (though I'm assuming the image quality is better in the original; otherwise I don’t see how anyone could tell):

Bullerdick represented to several contractors that, although JBT manufactured BGSE’s PC Air unit and GPU products, BGSE was the creator and owner of the designs, e.g.,

[BGSE] initially brought our designs for JBT AeroTech to build. They built the power and air for us up until last summer.... We began to shar[e] BGSE designs with Twist last summer in confidence. For 8 months now we have worked with Twist engineers quietly ... The product made for BGSE with BGSE technology is call[ed] “Cool Jet.” It is not available anywhere else.”

And:

JBT AeroTech builds 270VDC and CAS as a licensee of BGSE Group design specifications. The agreement has expired and JBT is not making the design supplied previously under BGSE licensee agreement at this time.... Solution ... Replace JBT with BGSE Group since BGSE Group is the designer and owner of the technology.

BGSE also created a brochure that contained excerpts of original JBT documents, with JBT identifying information removed and replaced with BGSE identifiers, and another that claimed that “All projects completed on this list have installed, commissioned and working 100% BGSE Group designs” with a technical specification substantially copied from JBT and two pictures of JBT HPCF 3000 PC Air units with BGSE logos superimposed on them.

After JBT sued, it sent the complaint and a cover letter to some of the parties’ mutual industry contacts. The cover letter reaffirmed that all JBT equipment sold through BGSE was designed and developed solely by JBT, and made some related statements.

False designation of origin: This was a reverse passing off claim, contending that defendants sold their products—competitor Twist’s PC Air units—by creating a false link with JBT’s products, by incorporating doctored JBT documents into bid proposals. (I don’t think the “false link” part is actually reverse passing off, stated that way—it’s false association.) But what was allegedly reverse passed off? Given Dastar, if the argument is that the bid proposals were reverse passed off, that fails. But the relevant goods were the equipment promoted by BGSE, which are tangible.

Arguing that they never actually sold any repackaged JBT products, defendants argued that Dastar precluded the claim, because Twist was the origin of the units BGSE ultimately supplied.

The court rejected this argument, relying on a Fourth Circuit case, Universal Furniture International, Inc. v. Collezione Europa USA, Inc., 618 F.3d 417 (4th Cir. 2010), which upheld a false designation of origin claim even though the defendant never sold any of the plaintiff’s products as if they were produced by the defendant. The defendant sold cheaper versions of two of the plaintiff’s most popular furniture lines, and at one point displayed in its showroom some of the plaintiff’s actual pieces. “Because [the defendant] displayed actual pieces from [the plaintiff’s furniture line] and marketed them as belonging to [the defendant’s] 20200 collection, [the defendant] falsely designated the origin of such furniture.” That was the case here too. JBT was the producer of the tangible goods Defendants were offering for sale in the documents, including the document that provided information for a nonexistent BGSE product that was copied from a JBT specification/manual. “Thus, although BGSE represented that it was offering for sale a BGSE product to be manufactured by Twist, the substance of the submittal revealed the product being offered for sale was actually produced by JBT.” [Comment: that’s really false advertising: they delivered a product other than that which was advertised, but the product delivered was from Twist/BGSE. This matters because calling it false designation of origin relieves plaintiff of the burden of showing materiality. The court doesn’t discuss Bretford Mfg. v. Smith Sys., 419 F.3d 576 (7th Cir. 2005), which held to the contrary that advertising a prototype made with another company’s parts, but delivering a product made by the advertiser, was not false designation per Dastar.]

The court then found that confusion was inherently likely from the false designation of origin. “[A] party’s attempt to pass off another party’s product as its own satisfies the confusion requirement of the Lanham Act for an obvious reason—it represents a direct attempt to confuse a consumer about the origin of a product.” And BGSE’s conduct harmed JBT because it “prevented JBT from reaping both the financial and reputational rewards associated with its products,” given that “Defendants often were able to fulfill the requirements of the bids they won only by representing a product JBT produced” and lacked their own, non-JBT, requirement-compliant products. JBT thus “lost contracts on which it would have otherwise been the supplier.”

False advertising: JBT’s separate false advertising claim principally relied on four promotional documents whose alleged falsities were (1) inclusion of excerpts of two JBT product manuals and two engineering documents stripped of JBT identifiers and replaced with BGSE’s logo; (2) a statement that “[t]he following F 35 specific projects all have BGSE Group Equipment. All projects completed on this list have installed, commissioned and working 100% BGSE Group Designs”; (3) a similar statement in another letter that “These are BGSE Group Designs. We produce the bill of material and design and pay for the certifications”; and (4) a statement claiming BGSE brought its designs and expertise to JBT to make “second generation” PC Air units.

Defendants argued that JBT endorsed these arguments with a presentation slide stating, “Together JBT and BGSE have developed, marketed, and tested power conversion, PC Air, and Aircraft Air Start products for the 21st century warfighters’ needs.” That slide expressed only general sentiments about working together—it wasn’t an official endorsement by JBT of BGSE’s role in developing any specific products. And even if BGSE might have contributed to the development of some of JBT’s products, it was undisputed that JBT designed and built one key piece of equipment, the one to which BGSE affixed its logo in the altered picture. That was literally false, and (2) and (3) were at least ambiguous but misleading (though the court didn’t require evidence of consumer deception in finding that there was no factual issue precluding summary judgment here).

However, showing the utility for plaintiffs of moving claims into §43(a)(1)(A) where possible, JBT didn’t show that the false statements constituted “commercial advertising or promotion.” Neither party submitted evidence from which the court could determine the size of the relevant market.

JBT argued that the relevant purchasing public was exceptionally narrow, limited to the design firms, the contractors working with the military, and the military itself, and the court was willing to make that inference, but “it remains unclear to the court how small is small.” The court had no idea how many design firms and contractors are hired per hangar or in the overall market, and “the court cannot on its own come up with the appropriate denominator to evaluate the extent of Defendants’ dissemination.” While the arguments here could’ve worked to defeat a motion to dismiss, this was a summary judgment motion where JBT needed to point to evidence in its favor.

JBT cited evidence that BGSE sent a promotional email to 38 individuals involved with F-35 maintenance hangars at military bases, and argued that this was a good reference point. But one instance “does not establish that those recipients comprise the entirety—or even a rough approximation—of the relevant market,” since there were many plausible reasons to target a subset.  “Ultimately, the record provides the court no meaningful way to extrapolate the relevant market from the email.” Summary judgment for defendants.

Trademark infringement based on BGSE’s use of JBT’s trademarks on BGSE’s website and incorporating them into the website’s metatags (ugh):  The parties gave no help to the court on the multifactor test; JBT argued initial interest confusion. The court rejected older, out of circuit case law “suggesting it is enough to show initial interest confusion where the defendant has used the plaintiff’s trademarks in the metatags of the defendant’s website.” Although similarity and intent weighed in JBT’s favor, there was no evidence of actual confusion, and “weighing perhaps heaviest against likelihood of confusion is the fifth factor, the degree of care likely to be exercised by purchasers.… Contractors do not casually place PC Air units and GPUs into their digital shopping carts” and indeed don’t seem to buy them via websites at all. However, the court still found a fact issue for the jury because “JBT submitted evidence Defendants used its trademarks exactly and did so with the intent to lure customers away from JBT,” and degree of similarity is the most important factor (sadly, no discussion of how that works in the comparative advertising context).

Defamation against JBT: Failed for lack of evidence of damages. JBT argued that damages could be presumed; under the relevant state law defamation per se was: “(1) charge of criminal conduct, (2) charge of a loathsome disease, (3) charge of conduct that is incompatible with the exercise of a lawful business, trade, profession, or office; and (4) charge of the unchastity of a woman.” [That last should be eliminated; it is ridiculous to have it in the standard list. No court would today say, as courts even half a century ago might have, that a false accusation of nonwhite heritage is defamatory per se or keep that on a standard list; what justification is there for this persistent sexism? Cf. Samuel Brenner, ‘Negro Blood In His Veins’: The Development and Disappearance of the Doctrine of Defamation Per Se by Racial Misidentification in the American South, 50 Santa Clara L. Rev. 333 (2010) (discussing defamation per se by racial misidentification).]

JBT highlighted statements such as “You have to remember [JBT was] our supplier and BGSE experience they steal very easily  ... What JBT can’t come up with themselves they lie and steel [sic] and just recently in Israel they told the customer they would buy and resell USS PITs. A complete lie but they said this so they could fool the customer into the order and then build themselves....” The court found that some of the statements looked defamatory, but also they were “rhetorical hyperbole.” Bullerdick’s allegations of JBT lying and stealing thus didn’t actually accuse JBT of unlawful conduct. “At bottom, though inappropriate, Defendants’ statements are not of such common notoriety or unmistakably injurious to relieve JBT of its burden to prove it was damaged.” Because JBT lacked evidence of special damages, defendants got summary judgment.

Tortious interference claims based on specific projects would go to the jury because of disputed issues of fact on whether JBT (which claimed it was the sole compliant supplier) would’ve gotten the contracts without defendants’ fraudulent conduct.

Defendants’ counterclaims: negligent misrepresentation claims based on JBT’s statements that it would (1) enter into a renewed distribution agreement with them and assist them on a bid failed because JBT owed them no duty of care at the time.

Defamation in the cover letter publicizing the suit: Statements that defendants weren’t authorized to sell JBT equipment didn’t rise to the level of defamation, even if they caused confusion. Tortious interference likewise failed for want of an improper means of interference.

Unfair/deceptive trade practices under North Carolina law based on the cover letter: This required that (1) the defendant committed an unfair or deceptive act or practice, (2) the action in question was in or affecting commerce, and (3) the act proximately caused injury to the plaintiff.” This cause of action is broader than the traditional common law; proof of actual deception is not required as long as “an act or practice possessed the tendency or capacity to mislead, or created the likelihood of deception.”  Further, “[n]either the actor’s intent nor good faith are relevant.” The cover letter qualified as deceptive based on the statements that the parties’ distribution agreement was terminated in early 2013, that JBT would only support sales that were in process at that time, and that JBT was the sole support contact. The first statement was untrue because JBT accepted multiple sales after early 2013 that it knew about, authorized, and supported. Likewise, JBT was not the “sole” support contact, despite the implication that BGSE was unauthorized to provide support. Defendants would face an “uphill battle” showing that these “relatively benign misstatements” proximately caused injuries, but JBT didn’t contest that aspect of the claim in its motion for summary judgment.