solar flareup: Panasonic and Tesla successor in interest in false advertising battle

I know you want to read about a false advertising dispute that, for once, tries to work around the restrictions of trademark law and not the other way around!

Kinect Solar, LLC v. Panasonic Corp., No. 1:20-CV-378-LY, 2020 WL 6385292 (W.D. Tex. Oct. 30, 2020) (magistrate R&R)

Panasonic entered into a partnership with Tesla to manufacture a line of solar panels known as “SolarCity” solar panels. Tesla began liquidating its SolarCity panels in 2019, and Kinect bought them. It began selling the SolarCity panels “through its normal channels” at a price that was “substantially discounted” compared to the solar panels that Panasonic sells directly through its own distribution network. Panasonic calls these “grey market” sales, even though they … aren’t? And one reason we know this is that there is no trademark counterclaim, despite trademark claims being much easier to win than false advertising claims.

Kinect allegedly contained Panasonic’s authorized installers “claiming that they were selling discounted SolarCity modules that were backed by and warranted by Panasonic.” Panasonic allegedly received messages from its authorized installers “inquiring whether the SolarCity solar panels were subject to the same warranties as Panasonic solar panels and whether these panels were part of Panasonic’s authorized installer program.”

A Panasonic rep told Kinect: “I just want to make sure that you guys understand that these panels do not have Panasonic Warranty and only Tesla is responsible for their warranty on those panels so the fact that we make them has not value to them [sic]. We’ll soon communicate to all our authorized installers about this to make sure they are aware of it.”

Kinect argued that this and related statements to installers were false, because Panasonic issued an “OEM Warranty” on the SolarCity panels. Panasonic acknowledged that Panasonic owed a 10-year workmanship warranty to Tesla for the SolarCity panels.

Panasonic then sent a letter to “certain of its business partners,” stating that the SolarCity panels “were not covered under any warranty by Panasonic Life Solutions of America,” and allegedly disseminated the letter to PV Tech, “an online news and trade company,” which published an article titled “US solar installers of Tesla designated panels [are] on the market with no warranties.” This allegedly harmed Kinect’s sales, and Kinect sued for business disparagement, defamation, tortious interference with prospective business relations, and unfair competition.

Panasonic counterclaimed for Lanham Act false advertising and tortious interference with business relations. Panasonic alleged that “there are significant differences in warranties and benefits associated with the two brands of solar panels including the entity issuing and administering the consumer warranty.” The Panasonic warranty only applies where the SolarCity panels are included in a photovoltaic systems sold by SolarCity/Tesla. And the SolarCity panels provide purchasers a 10-year limited warranty for workmanship by Tesla, while Panasonic-brand panels are provided a 25-year workmanship warranty. Kinect allegedly “knew that the limited warranty associated with the SolarCity panels was provided to end consumers by Tesla,” but nonetheless marketed the SolarCity panels under the Panasonic brand name and failed to disclose the differences between the brands of panels, including the warranties. Panasonic “is now inundated with installer and consumer questions and complaints directly associated with the misinformation being spread by Kinect.”

The magistrate largely recommended refusing to dismiss the claims/counterclaims, with the exception of an undeveloped common-law unfair competition claim.

Kinect’s business disparagement claim: Requires “(1) publication of disparaging and false words, (2) with malice, (3) which cause special damages, and (4) lack of privilege.”

Panasonic argued that it was literally true that the SolarCity panels were not covered by warranties issued by Panasonic Life Solutions Company of America, as it said, but Kinect sufficiently alleged implied falsity because the panels were backed by another Panasonic entity/division, and omitting that fact from the Panasonic letter created a false impression that Kinect was falsely advertising the presence of a Panasonic warranty. Kinect also sufficiently alleged the other elements, including special damages by alleging that sales representatives “have had prospective purchasers decline to purchase the [SolarCity panels], citing the reason that they were informed that the panels were not covered by a Panasonic warranty.”

Defamation: Requires that “(1) the defendant published a false statement; (2) that defamed the plaintiff; (3) with the requisite degree of fault regarding the truth of the statement (negligence if the plaintiff is a private individual); and (4) damages, unless the statement constitutes defamation per se.” Similarly, the challenged statements were capable of a defamatory meaning. A plaintiff can bring a claim for defamation “when discrete facts, literally or substantially true, are published in such a way that they create a substantially false and defamatory impression by omitting material facts or juxtaposing facts in a misleading way.”

Tortious interference with prospective business relations: Here, Kinect didn’t identify specific prospective or existing clients with which it would have done business but for Panasonic’s conduct, so the magistrate recommended dismissal.

Panasonic’s false advertising counterclaim: Also facially plausible. The court couldn’t resolve whether Panasonic was right on a motion to dismiss. Panasonic alleged that Kinect marketed the solar panels with “a doctored spec sheet … which completely removes the Tesla name and refers to the SC-Series as “Panasonic SC Modules.” In fact, the only company identified on the spec sheet is Panasonic with the words ‘manufactured by Panasonic’ at the top of the sheet.” Although this was literally true, Panasonic plausibly alleged misleadingness because “the panels were manufactured by Panasonic for Tesla in accordance with Tesla’s specifications” and the original spec sheet “clearly identified Tesla as the seller issuing the end consumer warranties.” The revised specification sheet could plausibly lead a reasonable consumer to believe Panasonic would be their contact for the warranties covering the SolarCity panels. [Given what I said above, I should say that this does strike me as a perfectly coherent false advertising claim, and grey goods cases would benefit from being framed as false advertising cases so that courts would take materiality seriously, as they do in false advertising cases.]

The court’s own examination of the marketing spec sheet—integral to the complaint and thus properly considered on a motion to dismiss—showed that the words “Manufactured by Panasonic” had been added, while this was deleted:

Modules are manufactured by Panasonic to the specification of SolarCity. Modules are only warranted by Panasonic if the modules are included in a PV system sold by SolarCity or Tesla. SolarCity and Tesla make no warranties related to the modules, which are sold as-is. SolarCity will handle any warranty claims on behalf of any purchaser.

Also, a reference to the module technology replaced “Manufactured by Panasonic for SolarCity” with “Panasonic SC Series Modules.” This was enough for a motion to dismiss.

Panasonic’s tortious interference claim was also sufficient, which seems a little contradictory since Panasonic didn’t identify specific customers, but it did allege that, “[w]hen the end-consumers and installers discovered that Kinect misrepresented the product affiliation, warranties, and benefits associated with the SolarCity panels, the end-consumers looked to Panasonic to remedy the mistake. In order to protect the goodwill of the Panasonic brand and maintain the loyalty of its customers, [Panasonic] assisted with the replacement of the SolarCity panels with Panasonic branded panels for these end-consumers,” which sufficed.