made-up statistic was false, but not deceptive or material

TrustID, Inc. v. Next Caller, Inc., C.A. No. 18-172 (MN), 2022 WL 318299 (D. Del. Jan. 5, 2022)

(Previous R&R discussed here.) The parties compete to provide anti-spoofing and caller-authentication solutions for companies; TrustID has several relevant patents. It sued NC for patent infringement; the jury found the asserted claims valid but not infringed. TrustID also sued NC for Lanham Act and coordinate state law violations based on NC’s advertising that it would “increase 10% IVR Containment Rate” [IVR=interactive voice system, used to handle inquiries without the help of an agent]and that its service performs its analysis pre-answer. The jury found that NC wasn’t liable for the “pre-answer” claim, but did find Lanham Act liability for the 10% statement, awarding $1.44 million in compensatory damages and an additional $1.44 million in punitive damages. NC moved for JMOL on the Lanham Act claims, which the court granted, rendering moot TrustID’s argument that the jury’s findings mandated a finding of state deceptive practices liability (which would have allowed it to revive that punitive damages award).

The court upheld a finding of literal falsity of the 10% statement based on the rule that a completely unsubstantiated claim is literally false. The jury was instructed: “A claim is completely unsubstantiated if you find that the advertiser had no semblance of support for the claim at the time it was made.” The jury heard and saw evidence that a Next Caller sales executive instructed its sales team to “jack that stat or make up a number like 8%.” Next Caller’s former head of engineering, who testified that Next Caller never verified the 10% statement and that he did not know how the 10% number was determined. The jury could have discounted the testimony of “jack that stat” guy stating that Next Caller used publicly available information and industry research to provide a “reasonable starting point” for the 10% statement as well as evidence that two customers’ experience provided a basis for the 10% number.

However, TrustID was seeking money damages, which requires proof of actual deception even for literally false claims.  Evidence that IVR containment is important to customers was insufficient. “To be sure, there is no requirement of direct evidence and a jury may make reasonable inferences, but the record contains essentially no evidence – direct or circumstantial – that customers were actually deceived by the 10% IVR statement.” The evidence showed that, of the four customers who testified, each was testing the product and engaged in discussions with NC before the false statement was made, and two were already customers.

Nor was the jury finding of willfulness sufficient to presume actual deception, at least in the Third Circuit (citing Johnson & Johnson-Merck Consumer Pharm. Co. v. Rhone-Poulenc Rorer Pharms., Inc., 19 F.3d 125 (3d Cir. 1994) for the proposition that an intent to mislead alone cannot create a presumption of actual deception).

This problem also prevented TrustID from showing materiality. The only customer testimony on point suggested immateriality, e.g., “Next Caller has not been used in the [IVR] for containment purposes at all” and that the customer does not “really use IVR authentication to drive IVR containment.” Likewise, TrustID failed to show injury.