Wednesday, September 16, 2020

5th Circuit reiterates stringent standard for injury in Lanham Act false advertising cases

Boltex Mfg. Co. v. Galperti, Inc., --- Fed.Appx. ----, 2020 WL 5506404, No. 19-20440 (5th Cir. Sept. 11, 2020)

Boltex and Weldbend sued Galperti and its Italian affiliate for Lanham Act false advertising and state unfair competition. Galperti counterclaimed for false advertising, false designation of origin, and unfair competition. The court of appeals affirmed the grant of summary judgment on all claims.

The parties make flanges used to connect equipment in the oil and gas, petrochemical, and construction industries. ASTM standards may require a heat treatment process to increase the carbon steel’s toughness and ductility; normalization is one such process and it makes flanges costlier than non-normalized flanges.

Boltex and Weldbend alleged that defendants adertise their flanges as normalized, even though they are not. Galperti counterclaimed that Boltex and Weldbend falsely advertised their products as American-made and misrepresent their quality, characteristics, and technical standards. The district court found that neither side had enough evidence of injury to survive summary judgment.

Principles: “A claimant seeking actual damages must prove that he has been injured in some way,” though actual losses need not necessarily be shown. “A plaintiff must nevertheless put forth ‘competent summary judgment evidence that indicates that consumers would have bought [plaintiff’s] products instead of the [defendant’s products] in the absence of the defendant[’]s[ ] allegedly false ... statements.” Plaintiffs argued that they also sought injunctive relief and disgorgement, and should have been required only to prove likely injury. Their evidence: (1) they were direct competitors; (2) deposition testimony from plaintiffs’ executives that defendants’ statements caused plaintiffs to lose sales; (3) customer statements the district court deemed inadmissible hearsay; and (4) plaintiffs’ damages expert report and testimony.

Initially, the court excluded consideration of two emails to customers because they weren’t “advertising or promotion.” The “relevant purchasing public” here consisted of as many as 81 customers, and there was no evidence that the targeted two “wield outsized purchasing power.” This wasn’t sufficient dissemination.

First, there was no precedent supporting the claim that, because both sides were “among the market leaders … within a limited pool of competitors, there should be a presumption that they were injured.” Second, the deposition testimony from executives was speculative/inadmissible hearsay. One witness speculated about losing a few customers before concluding, “I have no idea the number of people.” Another named four customers that had allegedly purchased defendants’ flange instead of plaintiffs’; when counsel asked how he knew that, he responded, “I’m pretty sure we’ve been told that they placed orders with Galperti or ULMA, because their—their customers are now requesting it.” Statements made by customers to a Weldbend salesperson and then at some point relayed to the executive by an unidentified source was “classic hearsay.” Boltex’s sales manager testified that two customers told Boltex that it had lost sales to defendants, which was also “plainly” hearsay, and the testimony didn’t specify the reason for the lost sales/relate them to normalization. “[T]he business records exception does not apply here because the evidence in question is deposition testimony about supposed customer reports, not the actual customer reports themselves.”

Testimony from a distributor who switched from Galperti to Boltex didn’t indicate that it would have bought Boltex/Weldbend flanges instead of Galperti’s in the absence of the allegedly false statements. An executive at another distributor testified that they relied on Galperti’s representations that it normalizes its flanges, and further that, hypothetically, if they couldn’t get a flange from Galperti, they’d get it from another core supplier. Puzzlingly, the court dismissed this as insufficiently decisive about whether they would actually use it, and anyway there’s a fourth “core”, nonparty supplier and some other suppliers to which any potential diverted sales could have gone. This wasn’t enough for a “real and immediate threat of future or continuing injury apart from any past injury.”

And plaintiffs didn’t rely on their expert report to show causation in the district court, so they couldn’t do it now.

Counterclaims: “Because of the type of relief it sought, Galperti was not required to prove actual injury, but had to at least prove the likelihood of injury.” However, even that failed because Galperti didn’t offer any evidence that would allow a factfinder to infer that the parties are competitors in the market for U.S.-sourced flanges. Galperti doesn’t produce flanges made in the USA; the court couldn’t see how it was likely to be injured by not falsely advertising “made in the USA” while plaintiffs did. “[A]ny profits Plaintiffs gain from their allegedly false advertising would not be at Galperti’s expense unless Galperti too competes in the market for U.S.-sourced flanges.” [Of course Galperti could be injured without participating in that market! If some consumers trade off price/other characteristics with “made in the USA,” then Galperti could offer an otherwise superior package and lose out in the competition. Only if no amount of price/other feature superiority can overwhelm “made in the USA” are the markets independent of each other. Maybe that’s true—but that’s a different thing than what the court of appeals says.] It also wasn’t enough to argue that some of the steel Galperti uses is of US origin.   

There similarly wasn’t sufficient evidence on the other alleged types of unfair competition.

 Comment: now do injury in trademark cases.

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