marketing may be material even to very expensive/complex business purchases

Pegasystems Inc. v. Appian Corp. No. 19-11461-PBS, 2022 WL 4630231, --- F.Supp.3d ---- (D. Mass. Sept. 30, 2022)

Pegasystems alleged that defendants, which compete with it in the business process management (BPM) software field, engaged in false advertising and commercial disparagement in an online report that portrayed Pegasystems unfavorably. (Previous discussion.) Appian counterclaimed similarly (previous discussion); having denied a preliminary injunction, the court now slightly reduces the issues remaining for trial.

The parties’ products sell for millions of dollars to large corporations or government agencies, and there are many other vendors besides them. Defendant BPM.com reported on the BPM industry. Appian hired BPM.com to prepare a report that would “clearly identify and articulate[ ] the value delta of Appian over Pega.” The result portrayed Appian more favorably than its competitors. E.g., “Pega customers reported spending on average 11 times more than Appian customers, and nearly twice that of IBM customers,” and other quantitative claims about time and scope. Appian disseminated the report through its sales team, social media, and other marketing.

Appian’s counterclaims targeted Pegasystems marketing materials that claimed that Pega was better at scalability than Appian, including allegedly false claims that “Appian lacks basic backend performance/tuning tools,” “There is no way to have more than one person working on a process at one time,” and “Because Appian requires a great deal of JavaScript, especially for the user interface, it is not truly model-driven.”

Pegasystems also hired Sinur, “a researcher and influencer within the BPM community,” to draft a report comparing Pegasystems’ and Appian’s platforms. The report didn’t disclose that Pegasystems commissioned it. 

Appian also challenged a a LinkedIn post by a Pegasystems Senior VP/CMO after the court denied Appian’s motion to dismiss:

We all encounter examples of business ethics we find questionable ... patent trolls, paid content promoted as ‘unbiased truth,’ and sometimes just blatant lies. I’m proud to work for a company that is not afraid to undertake the unpleasant action of litigating against those whose actions we believe are unlawful and unethical. If you’re thinking about Appian, you should read this first[.]

The linked to an article (not mine) that summarized the Court’s ruling; Pegasystems encouraged salespersons to share the post and to use it when competing against Appian.

Starting with Pegasystems’ claims, Appian and BPM argued that there was no proof of cognizable injury, and that there was no presumption of injury because multiple firms compete in the BPM market. But a two-player isn’t always required for a presumption, where there’s a false/misleading comparison to a specific competing product. “Because the BPM.com Report’s comparative statements would diminish Pegasystems in the minds of consumers, it is entitled to the presumption of injury at this stage.” There was also a fact question on reputational injury, since three Pegasystems customers raised questions about the BPM.com report’s claims to Pegasystems following its publication. “These customers did not move their business from Pegasystems, but a reasonable jury could infer, based on their concerns, that the BPM.com Report generated similar concerns in the marketplace.”

Money damages: Pegasystems conceded at various points during discovery that it had not identified any business it lost because of the BPM.com report. It later identified an allegedly lost opportunity, but its evidence was weak—an internal Appian email saying that the potential clients “were really excited to hear about” the BPM.com report. There was no testimony or documentary evidence from the client that the report was a substantial factor in its decision. No reasonable jury could conclude that Pegasystems lost that opportunity because of the BPM.com report. So Appian got summary judgment on Pegasystems’ claim money damages for lost business.

However, disgorgement remained possible, using old language from false advertising cases rather than from Romag (suggesting that willfulness would matter/was uncontested at this point in the proceedings). Since the parties were direct competitors, disgorgement of profits would depend on:

(a) the degree of certainty that the actor benefitted from the unlawful conduct; (b) the relative adequacy to the plaintiff of other remedies, including an award of damages; (c) the interests of the public in depriving the actor of unjust gains and discouraging unlawful conduct; (d) the role of the actor in bringing about the infringement or deceptive marketing; (e) any unreasonable delay by the plaintiff in bringing suit or otherwise asserting its rights; and (f) any related misconduct on the part of the plaintiff.

Injunctive relief was moot because Appian submitted a declaration that it instructed its personnel to discontinue use of the BPM.com report, and won’t resume doing so.

Pegasystems also moved for summary judgment on liability for its own Lanham Act claim, but there was a genuine issue of fact on whether the BPM.com report’s claim that the average total cost of ownership of Pegasystems’s products was more than ten times greater than that of Appian’s products was literally false. Pegasystems contested its methodology but didn’t show the actual cost to own its solutions as compared to Appian’s. Internal Pegasystems emails stated that Pegasystems is much more expensive than Appian, and an independent report concluded that Pegasystems is “relatively expensive.”

Pegasystems argued that Appian’s Lanham Act counterclaim was barred by laches (the analogous state limitations period being four years under Mass. Chapter 93A). The period is triggered not when Appian knew or should have known the advertising caused it injury, but when it knew or should have known of the false advertising. Under that standard, a presumption of laches applied to the claims about the Sinur paper with the undisclosed sponsorship, but not others. Appian didn’t show that its delay in suing over the Sinur paper was reasonable or that Pegasystems was unharmed by the delay; indeed, Pegasystems lost certain emails, some of which may have been on point, in a 2017 system upgrade. But Pegasystems didn’t show laches with respect to the remaining materials.  The same result occurred on the Chapter 93A claims using the statute of limitations.

Were the remaining Pegasystems marketing materials disseminated broadly enough to be “commercial advertising or promotion”? The BPM market is large. Pegasystems distributed its scalability White Paper 6 times to 5 organizations, and another comparison 30 times to 15 organizations, and also circulated them internally and encouraged salespersons to use them with customers. A reasonable jury could conclude that they were advertising or promotion, but not other documents without such a documented dissemination history.

The court also rejected Pegasystems’ argument that the BPM sales process is so lengthy and complex that its marketing materials could not have influenced purchaser decisions as conclusory. Appian claimed that it lost seven customers at least in part because of Pegasystems’ conduct, which its expert said cost Appian $26 million in lost profits. For example, one customer that chose Pegasystems over Appian informed Appian that it needed a platform that could perform “on enterprise architecture level,” which mimicked Pegasystem’s criticism of Appian’s inability to handle the “needs of an enterprise BPM program.” A reasonable factfinder could infer such customers chose Pegasystems at least in part because of the marketing materials. And a jury could also find that scalability was material; one of Pegasystems’ own employees testified that scalability is “one of the things that you would need to be able to show to compete for business,” while Appian’s expert stated that scalability is an essential factor in the decision-making processes of potential purchasers.

There was also a triable issue on falsity. Statements that Appian “lacks key capabilities needed to scale” were “unambiguous.” Pegasystems argued that its statements that Appian’s total cost of ownership is “higher” couldn’t be literally false because “[h]igher than what is not specified.” “But any reasonable reader would understand the documents to compare the [total costs] of Appian and Pegaystems.” Plus, statements of Pegasystems employees “suggesting that they knew their claims about Appian’s scalability were made up” were probative of falsity, e.g., “[w]hat we have stated about [Appian’s] scalability does not seem to jive with the Appian documentation.”

Likewise, there was a triable issue on commercial disparagement, which doesn’t require commercial advertising or promotion, with the exception of time-barred claims arising from the Sinur paper.

Appian also counterclaimed for defamation based on the LinkedIn post, which allegedly implied that the Court’s prior opinion supported the notion that Appian had told “blatant lies” in the BPM.com Report. Although defamation usually has lots of First Amendment protections, a jury could reasonably find that the post was commercial speech, as it encouraged readers to review an article about the Court’s opinion if they are “thinking about Appian” and Pegasystems urged its sales force to share the post. A jury could also reject the “fair reporting” privilege and find that the post created the mistaken impression that the Court found that Appian told “blatant lies.” “[A]ccusing another party of being a ‘liar’ has generally been held to be defamatory” and “[a]lthough the LinkedIn Post ostensibly relied on this Court’s prior opinion regarding Pegasystems’ claims against Appian, that opinion does not support the statement that Appian told ‘blatant lies.’ ” Actual malice was not required because Appian was not a public figure for purposes of this dispute.