materiality/damages requirements continue to make false advertising harder to win than TM cases

TRUSTID, Inc. v. Next Caller, Inc., 2023 WL 2298748, 2022-1433 (Fed. Cir. Mar. 1, 2023)

Discussion of some district court proceedings here. TRUSTID lost both patent infringement and Lanham Act false advertising claims. I’ll only discuss the latter. 

TRUSTID developed a caller identification product known as the Authenticator. Next Caller competed with its VeriCall. “Both products detect fraudulent or ‘spoofed’ calls while authenticating those from a business’s genuine callers…. TRUSTID advertised that use of the Authenticator could lead to a 5–10 percent improvement in IVR containment rates, a measure of callers who can have their issues resolved by the automated system without having to speak to a live agent.”

Next Caller’s Head of Sales instructed his team to “jack that stat or make up a number like 8%” for Next Caller’s product, so Next Caller advertised VeriCall as providing a 10 percent increase in IVR containment rates.

The jury found Next Caller’s 10 percent IVR containment statements to be literally, and willfully, false, awarding $1.44 million in damages, plus an additional $1.44 million in punitive damages, but the trial court granted JMOL for want of evidence of deception, materiality, or damages.

Although TRUSTID argued that actual reliance wasn’t required, only that a false statement be “likely to influence the purchasing decision,” the Third Circuit requires that, for monetary damages, “there must be a showing of some customer reliance on the false advertisement.” Either way, there was insufficient evidence to support a finding of materiality because “the only evidence for [ ] customers that addressed IVR containment suggested that IVR containment was not important or relevant to their purchasing decisions.” One customer purchased before the false statements; others conducted their own tests or relied on referrals. Even if only likely impact was required, there wasn’t evidence that customers were likely to be influenced by the false statements after having performed their own independent testing of the product or in deciding to purchase the product for implementation outside of the IVR context. Although TRUSTID’s CEO testified that IVR containment is “the single key metric for companies that use it,” there was no testimony from a Next Caller customer that did use or consider using VeriCall for that purpose.

TRUSTID argued that it could get profit disgorgement anyway, but that’s only for trademark infringement, because infringement constitutes “an actual finding of injury.” [Narrator: it does not; neither materiality nor injury are elements of the current infringement test, though the Federal Circuit cited a 1957 case to support its conclusion, and that case was much closer in time to the classic, limited concept of trademark infringement.]