in a Lanham Act (false advertising) case, presumptions cannot substitute for Article III injury

TocMail, Inc. v. Microsoft Corp., --- F.4th ----, 2023 WL 3070085, No. 22-10223 (11th Cir. Apr. 25 2023)

Previous district court opinion allowing Lanham Act false advertising claims to proceed against Microsoft; applying the Article III analysis that doesn’t (yet?) get applied to trademark claims, the court of appeals concludes there’s no standing and thus no jurisdiction over the appeal.

TocMail “offers a product geared towards a specific type of threat called Internet Protocol (IP) evasion. TocMail launched its IP-evasion product, got a patent, and then sued Microsoft for false advertising—all within two months.” It alleged that Microsoft misled the public into believing that Microsoft’s product offered protection from IP evasion. But at summary judgment it failed to show any injury.

Microsoft’s Safe Links, part of its larger product, evaluated links as users clicked on them; the parties disputed whether it protected users from IP evasion, which occurs when a link sends visitors to different websites depending on the visitor’s IP address, thus attempting to send a security program to one (safe) website and the real user to another (malicious) website. Microsoft’s ads included statements like:

Sophisticated attackers will plan to ensure links pass through the first round of security filters. They do this by making the links benign, only to weaponize them after the message is delivered, altering the destination of the links to a malicious site. With Safe Links, we are able to protect users right at the point of click by checking the link for reputation and triggering detonation if necessary.

As a new market entrant,

TocMail hasn’t done much to market its product. In bringing its product to market, TocMail has issued two press releases, sent some emails to potential investors, and spent a few thousand dollars on digital advertising. That’s essentially it. TocMail hasn’t made any sales. TocMail admits that, although over 33,000 people have visited its website, it has not made a single sale and has zero revenue. There’s no evidence that TocMail has achieved any reputation in the marketplace.

It nonetheless estimated, based on Microsoft’s sales, “more than $43 billion in lost profits.”

While the harm theory might have survived a motion to dismiss, TocMail didn’t offer any expert testimony on damages causation, relying instead on the presumption of injury that some courts have held arises in a two-player market. According to TocMail, “TocMail and Microsoft are the only cybersecurity vendors that promote their cloud-based, time-of-click services as effective protection against IP evasion.” Given Microsoft’s dominance, TocMail argued, consumers would believe Microsoft over a startup. And TocMail pointed to evidence that one of Microsoft’s customers, Bosch, raised concerns about IP evasion and asked Microsoft if it would need to add a third-party solution for additional protection. Microsoft responded that Bosch “should be covered for email-based threats” with “the full suite of [Advanced Threat Protection] and the right best practices.” At the same time, Microsoft said that it “of course encourage[s] customers to take a multi-tiered approach to security.” And it noted that it was “exploring new ideas” to prevent IP evasion.

The district court granted summary judgment for Microsoft on failure to show falsity or misleadingness, but the court of appeals had to do Article III first.

TocMail failed to show injury in fact. It didn’t offer testimony from any witness saying that he or she would have purchased TocMail’s product if not for Microsoft’s advertising, any expert testimony calculating TocMail’s lost sales from consumers who went with Microsoft (its expert instead calculated lost profits by assuming that TocMail would have sold to everyone who paid for Microsoft’s product), or a survey showing that consumers had any interest in buying TocMail’s product. When it sued, it had done minimal advertising, and hasn’t made a single sale. Any harm was pure speculation. There was no evidence that the website visitors who declined to buy the product had even seen Microsoft’s advertising or bought Microsoft’s product. As to the customer who asked about IP evasion, TocMail didn’t depose anyone from that customer or provide other evidence that it would have bought from TocMail. The Supreme Court has indicated its “reluctance to endorse standing theories that rest on speculation about the decisions of independent actors.” [Ed. note: Like trademark claims do?]

TocMail’s claim was too hypothetical and uncertain, given that it assumed: “(1) that consumers read Microsoft’s advertising, (2) that consumers understand IP evasion, (3) that consumers are concerned about IP evasion, (4) that consumers would be willing to buy computer security programs from a company without any reputation, (5) that consumers would pay the price TocMail is charging, and so on.”

“All TocMail needed was some evidence that it suffered an injury: some testimony, some survey, some report. But TocMail has none.” What about presuming injury from being in a two-player market? Well, that presumption has been applied to the merits, not standing. “While it may make sense to presume injury in assessing the merits, presuming an injury in fact for purposes of standing would raise serious constitutional questions.” [Ed. note: Cf. the TMA’s presumption of irreparable injury.] “A legal presumption would seem to fall short of showing (through specific facts) a concrete and actual injury.”

Moreover, a presumption of injury from a two-player market “is based on an assumption about how third parties will behave. But this presumption collides head on with the Supreme Court’s ‘reluctance to endorse standing theories that rest on speculation about the decisions of independent actors.’ … In short, we can’t presume an injury in fact.”

The court here agreed with Hutchinson v. Pfeil, 211 F.3d 515 (10th Cir. 2000), which held that a presumption of injury alone cannot serve to prove standing. The cases that use the presumption of injury “merely support the proposition that when a plaintiff with an otherwise sufficient interest to have standing shows that its interest has been subjected to patently false representations, harm sufficient to sustain a claim and justify equitable relief may be presumed” (also citing Ortho Pharm. Corp. v. Cosprophar, Inc., 32 F.3d 690, 697 (2d Cir. 1994) (“Because consumer behavior is unpredictable, and because of the general rule in our [c]ircuit against making presumptions of injury ... favorable to the plaintiff, we affirm the district court’s decision dismissing [the plaintiff’s] Lanham Act claims for lack of standing.”)). “The presumption cannot be used to show Article III standing.”

Is INTA worried yet?