Monday, September 26, 2022

standard setting bodies don't proximately cause Lanham Act injury when states adopt their recommendations

Geomatrix, LLC v. NSF Int’l, 2022 WL 4369950, No. 20-13331 (E.D. Mich. Sept. 21, 2022)

Geomatrix sued defendants for Sherman Act violations and false advertising in the market for onsite wastewater treatment systems, aka septic systems. The antitrust claims failed because they were antitrust claims/because of Noerr-Pennington (First Amendment protection for petitioning government trumps antitrust laws); the false advertising claims also failed.

Two competitors are defendants, as well as NSF, a nonprofit accredited by ANSI that “certifies many of the onsite wastewater products brought into commerce.” Both NSF employees and employees of product manufacturers sit on the relevant committee, and one defendant’s employee served as chair of a subcommittee charged with the development of a new standard for high-strength wastewater, and allegedly essentially ran the Wastewater Technology standard-setting process on behalf of NSF between 2010 and 2020.

According to the complaint, increasing environmental regulations and other constraints have led for demand for more advanced technologies to ensure sewage is thoroughly treated before it reenters the water table. There are two main options: an “aerobic treatment unit” known as an “ATU,” or “Contained System,” which “works more like a mini-municipal wastewater treatment plant, cleaning the water within a controlled environment before its release.” The majority of plaintiff’s competitors allegedly produce contained systems. The second option is “Treatment and Dispersal”/“Open Bottom” systems, which operate much more like a traditional septic system, but use more advanced dispersal devices which allow in oxygen (thereby increasing the growth of microorganisms) and provide additional filtration as effluent leaches back into the ground. Geomatrix largely produces treatment and dispersal systems, which are allegedly both cheaper to install and operate than contained systems. But competitors have allegedly used misinformation to limit their uptake.

Each manufacturer pays NSF annually to renew the “listing” for each wastewater products it has certified under its standards. So, Plaintiff theorizes that NSF participated in the conspiracy to protect its own revenue since the majority of the products it certified are contained systems.

The advertising-related allegations involved disparaging a Geomatrix product that was already certified; adopting the disparaging term “uncontained” system to refer to its products; and otherwise disparaging the safety and efficacy of treatment and dispersal. Geomatrix was allegedly “unable to receive approvals in most states” for its product in states that had adopted statutes and regulations “requiring NSF Standard 40 certification” for onsite wastewater systems, and was under threat of being excluded from the new standard for high-strength wastewater.

Lanham Act claims: Geomatrix alleged that NFS misrepresented its own services, e.g., marketing that “NSF provides a fair and open process for standards-setting;” falsely informing Geomatrix “that it abides by the Standards Development Process and Antitrust Guide;” “publishing an issue paper stating that Treatment and Dispersal Systems did not fit under NSF/ANSI Standard 40;” “[m]aking public statements that require NSF Standard 441 to incorporate all technologies and subsequently placing blame for the delay in the standard-setting process on Geomatrix.” Other defendants allegedly used their roles in the standard setting process “to disparage and preclude Geomatrix products from the market.”

Both types of claims flunked Lexmark’s proximate cause requirement, and the court commented that the claim against NSF also didn’t fall within the Lanham Act’s zone of interest; NSF was essentially a supplier of services and Geomatrix most analogous to a customer, who lacks Lanham Act standing. “Put simply, ‘it is impossible to trace a straight line’ from Defendants’ alleged conspiracy to disparage GeoMat by questioning their effectiveness and environmental impact (the illegal conduct) to Plaintiff’s inability to sell its GeoMat products in various states (the injury).” The actual cause of Geomatrix’s inability to sell its GeoMat products in an unspecified number of states was the “independent decision of each state’s environmental regulators not to approve the products for sale.”

State law claims failed for similar reasons, including Noerr-Pennington.


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