alleged "misinformation campaign" about micro-irrigation firm is enough to survive motion to dismiss

Netafim Irrigation, Inc. v. Jain Irrigation, Inc., 562 F.Supp.3d 1073 (E.D. Cal. 2021)

The parties compete in the micro-irrigation industry, which targets agricultural growers. Netaifm alleged that defendants engaged in anticompetitive market behavior when the Jain entities acquired majority shares of two local design firms, which connect manufacturers to growers, and alleged false advertising. Jain is Netafim’s largest competitor.

In 2016, Netafim had approximately $65 million in sales in Central California, which included around $9 million in sales through the design firms acquired by a Jain entity; those design firms had combined revenues of $113 million in 2016 and were the two largest micro-irrigation design firms in the area. Jain had approximately $25 million in Central Valley sales in 2016. After the acquisition, Netafim terminated its relationships with the firms, and Netafim’s equipment sales declined in 2017 and were still depressed through 2020.

The antitrust claims were insufficiently pled because they were antitrust claims.

False advertising: “Netafim alleges that, following the acquisition, Defendants made numerous false or misleading statements about (1) the usefulness and safety of micro-irrigation equipment manufactured with additives, foaming agents, or recycled materials, and (2) Netafim’s ability and willingness to fulfill warranty obligations.”

Jain allegedly trained its new salespeople how to pitch against Netafim equipment “with a sales handbook that included magnified photos purporting to be damaged Netafim equipment,” using the images “to falsely represent to customers that Netafim’s equipment is of inferior quality because it contains recycled materials.” Salespeople also allegedly stated: (1) “Netafim is primarily owned by venture capitalists and the investors have been concerned with their returns”; (2) “[o]ther than changing the names of some products, there have not been recent new product advancements, or improvements in efficiency made by Netafim to stay competitive”; and (3) “[a]s a result, Netafim have been utilizing foam fillers and recycled materials to manufacture its new drip tape and hose in order to reduce its resin cost and maintain margins.”

Netafim also identified blog posts on Jain’s website and republished on a design firm’s website making similar claims that “some manufacturers” were using bad materials to “save money” and “no longer follow engineering standards,” along with other specific performance claims, including “There simply is not enough of a safety factor in operating pressure and long term operating and burst pressure performance.” Other allegedly false statements about Jain’s own products were in a video embedded in one of the blog posts, e.g., allegedly false claims to use  “100% virgin plastic.”

The court was unimpressed by Jain’s quibbles with particular statements. Although Netafim’s allegations about one grower “describe only statements made by a single salesperson to a single grower during a single sales conversation,” and although that wouldn’t be enough on its own, the pleadings supported its “overarching claim that Defendants engaged in a ‘misinformation campaign’ regarding Netafim’s products and the usefulness and safety of micro-irrigation equipment manufactured with additives, foaming agents, or recycled materials.” As an overarching claim, this was sufficient.

“Netafim has identified specific false or misleading statements that Defendants made regarding their own micro-irrigation equipment and that of competing manufacturers. Although some of these statements did not refer directly to Netafim or include a side-by-side comparison between Defendants and their competitors, some direct comparisons were made and the collection as a whole reasonably indicates that such associations were implied when not expressed.”

And commercial advertising/promotion was also satisfied, given the statements’ “dissemination to the relevant purchasing public through direct interactions or targeted blog posts” and allegations that salespeople were trained to make false comparisons. “While generic, this point is adequately bolstered by Netafim’s description of the conversation with the San Joaquin Valley grower that involved the same kind of statements, as well as its allegation that growers informed of being pressured with similar sales pitches after the acquisition.” Likewise, “even though Netafim’s injury allegation is conclusory, commercial injury is generally presumed when the plaintiff competes directly with the defendant and the defendant’s statement has a tendency to mislead consumers.”

Warranty statements: One blog post said, allegedly in relation to a then-pending change in Netafim’s ownership: “I would recommend asking, who is warrantying the product? Will this company be in its current form and have the ability and willingness to honor the warranty or will you be dealing with a new owner in a business that has significantly changed.” Defendants argued that this was puffery and not alleged to be deceptive or harmful. Netafim lumped this statement in with others. Though the court declined to dismiss the claim as applied to the statement simply because there was no direct comparison, it did think Netafim hadn’t adequately alleged deceptiveness/materiality.